The demand for a home loan is substantial today, as interest rates hit 15-year lows. Besides these lucrative home loan offers, increasing property prices are partly responsible for the popularity of such credits.

Still, availing of a housing loan comes with worries like looking for a reliable lender who charges a reasonable home loan processing fee and other related charges. In this regard, a smart borrower can always rely on tax considerations that make the credit variant convenient and reasonable. 

Another way to reduce strain from these expenses is to avail of tax deductions, eligible on these charges, as per certain ITA provisions.

What are the tax benefits available on a housing loan processing fee?

Most taxpayers are unaware of the benefits like tax deduction attainable on home loan processing fee. The Indian law considers these charges as interest, hence, allowing deduction on taxable income for the same.

The Income Tax Act, Section 2(28a) states that an interest paid in any mode against a loan or a debt incurred like deposit or claim is deductible or payable. These charges can include service fee, NOC charges, insurance etc. 

Hence, if a borrower has already clicked on the home loan online apply option, rest assured as section 24 would aid in a tax deduction, thereby reducing one’s liabilities significantly. 

It is essential to remember that tax benefits on processing charges are not applicable to penal charges. Moreover, knowing the tax savings and other advantages offered by home loans today will help make the most credit.

To claim the obligatory tax benefit, a borrower must ask their financial institution for a certificate regarding the payable processing fee. This eases out the application and quickens the process of receiving benefits while managing income tax liability.

Hence, learning about such intricacies regarding housing loan and its variables like home loan processing fees is crucial for a borrower. This would reduce the overall financial burden and encourage healthy savings, simultaneously improving one’s credibility. 

What is the purpose of processing fee on a home loan?

As the name suggests, a processing fee is a charge levied by a financial institution to process a home loan. Ideally, most NBFCs charge a certain percentage of the principal loan amount as the home loan processing fee.

This is a charge that borrowers need to pay at the beginning of a home loan tenor. Therefore, borrowers need to plan the fee payment apart from home loan rates for smart savings. Ideally, the charges can range from 2-3% depending on the chosen lender. 

For instance, a borrower availing Rs.20 lakh as a home loan may have to pay Rs.20,000 as  a processing charge, which is a significant expense. Moreover, the charges can include additional payments and registration fees, which adds to the burden.

Some of the types of processing fees levied on a home loan are-

• Memorandum of Deposit of Title Deed or MOTD
• Loan conversion charges
• Legal charges
• Pre-payment fees
• Technical processing charges
• Processing fees
• Other related charges, etc.

Paying these fees can be an expensive deal which is challenging for the home loan borrowers, who are already under financial pressure. Hence, an individual must know ways of decoding their home loan fees and charges to save more while paying EMI and tax. 

While an EMI calculator reveals the monthly instalments for a housing loan, it does not consider such processing charges. Borrowers can look for HFCs that charge affordable fees, besides the reasonable interest rate.

One can also find customised pre-approved offers from these HFCs that ensures faster loan disbursals. These offers are available on products like loans against property, home loans, etc. Check your pre-approved offer by entering a name and contact number to enjoy these features.