Good news for housing loan borrowers. RBI (Reserve Bank of India)has banned all lenders from charging the penalty on floating rate home loans.
India's central bank RBI has asked banks to abolish pre-payment penalty on housing loans taken on a floating interest rate.
Housing finance regulator NHB (National Housing Bank) has already barred home finance companies from charging any prepayment penalty. Among banks, SBI (State Bank of India) was the first to do away with the pre-payment fee on both fixed and floating rate loans. Following this, many big banks such as ICICI Bank, Bank of Baroda waived off prepayment penalty charges for housing loans taken on a floating rate, nearly 20 banks withdrew the penalty on floating rate loans. However, most lenders continue to charge the penalty on premature closure of fixed rate loans.
The RBI regulation now ensures that all banks obey the rule compulsorily.
Mr. D. Subbarao, Governor, RBI said, “Some banks have waived the prepayment penalty, but there were some banks that had to fall in line. We made it a policy so that a fair & transparent mechanism would be in place to protect the interest of the retail borrowers."
This was one of the recommendations made by the Damodaran (SEBI Ex - Chairman) committee last year, which observed that foreclosure charges were resented upon by housing loan borrowers across the board, especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.
Banks and Housing finance companies used to charge 1.5 to 3% of the loan outstanding loan amount as s prepayment charge from housing loan borrowers.
India's central bank RBI has asked banks to abolish pre-payment penalty on housing loans taken on a floating interest rate.
Housing finance regulator NHB (National Housing Bank) has already barred home finance companies from charging any prepayment penalty. Among banks, SBI (State Bank of India) was the first to do away with the pre-payment fee on both fixed and floating rate loans. Following this, many big banks such as ICICI Bank, Bank of Baroda waived off prepayment penalty charges for housing loans taken on a floating rate, nearly 20 banks withdrew the penalty on floating rate loans. However, most lenders continue to charge the penalty on premature closure of fixed rate loans.
The RBI regulation now ensures that all banks obey the rule compulsorily.
Mr. D. Subbarao, Governor, RBI said, “Some banks have waived the prepayment penalty, but there were some banks that had to fall in line. We made it a policy so that a fair & transparent mechanism would be in place to protect the interest of the retail borrowers."
This was one of the recommendations made by the Damodaran (SEBI Ex - Chairman) committee last year, which observed that foreclosure charges were resented upon by housing loan borrowers across the board, especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.
Banks and Housing finance companies used to charge 1.5 to 3% of the loan outstanding loan amount as s prepayment charge from housing loan borrowers.
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