Home Loan No Processing Fee? Well, Fineprint Can Be Something Else..!

By Arnav Pandya, CFP

As the festive seasons, banks and housing finance companies (HFCs) are making a conscious effort to attract customers to take home loans from them for their various spending requirements.

This has led to a rush of offers to ensure that the customer selects a particular bank / HFC over others. One of the ways in which there has been differentiation is through reduction or /  elimination of processing fees charged at the time of giving loan.

 It is important to consider this as a part of the overall decision-making process to understand its implications and how such offers can be tackled.

Processing Fees..!

Processing fees are one time charges collected by banks /HFCs while granting a housing loan. This is meant to be the expense for the completion of the various requirements for giving the home loan.

Individuals have to ensure that they are factoring this into their entire home loan scheme of things. The lower the fees, the better this is for the borrower as their cost will remain low.

Actual Impact..!

Mr. Arnav Pandya, CFP

 It is important to check the actual impact that the change in processing fees would make on you at the time of taking the home loan. For example, presence of a 75% reduction in processing fee does not mean that the fee you pay is lower than what you would pay if the processing fees were reduced by 50%. It could be that in the initial case, the processing fees were at 1%, while in the later, they were 0.4%.

There are different ways in which you can look at the issue. If you consider absolute figures, then the total amount of the processing fees paid might see a different impact, compared with the impact of the change that has been proposed by a bank/ HFC.

This will give you an idea about the total savings that a particular change will get for you. In many cases, the figure might be quite low in absolute terms, so this might not be very important in terms of the savings.

Overall Decision..!

There are 2 aspects to the whole process of taking a loan where one relates to the extra charges that are paid at the time of taking the loan and the second is the overall cost & position related to the home loan over its life time.

Considering the benefits that are available with a bank /HFC  over the life of the loan, it is important that borrowers see the impact of a loan in terms of low overall rates & how this is different from the other offerings in the market.

The other thing could be that there are several and several conditions that are beneficial for a particular bank / HFC that makes working and using that a better alternative. So in this case, this could influence the final decision.

Both these factors can be the reason behind considering one bank / HFC over the other. What is important is that you take an overall view of the situation and not just make a decision based on a couple of factors that might seem to be favourable.

This is important because if this is not done then there could be a position where the final decision might turn out to be financially unfavourable.

About the Author..

Mr. Arnav Pandya is a CA and CFP (certified financial planner)

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