Housing
loan borrowers who availed of dual rate, which were hugely popular between 2009
and 2011 in India. It will be allowed to
pre-pay loans during the floating rate phase without a fine.
Dual interest rate..!
The
National Housing Bank (NHB) has revised its earlier decision where it had said
that dual rate loans would be classified as fixed rate loans if at the time of
signing the contract the loan was subject to a fixed rate.
Since
a big chunk of housing loans that were availed between 2009 and 2011 were dual rate, a big chunk of borrowers
will benefit as these loans are now switching to floating interest rate. These
borrowers who raised loans at interest rates ranging from 8% to 8.5% found
their interest burden jumping to over 11.5% as the rates switched to floating.
This was because interest rates had moved up sharply between 2010 and 2011 when
RBI (Reserve Bank of India) raised its key rates about dozen times.
Waive
fine on floating rate..!
Although
NHB & RBI have asked lenders to waive penalties on refinancing of floating
rate loans the one exception was floating rate loans which were earlier fixed
as they were part of a dual rate contract wiith housing finance companies.
2011October,
NHB had said that in the case of dual
rate loans, lenders should consider the loan as fixed if the loan had a fixed
loan nature at the time of the contract.
As a result of this HFCs (Housing Finance
Companies) were requiring borrowers to pay a foreclosure penalty of 2% to 2.5%
on dual rate loans even when they were repaid after the switchover to floating
rates.
"Feedback
was received by NHB about the features of the dual / special rate products
offered by the HFCs, and their relative interest rate structures. It has been
observed that there is wide variation / non-uniformity in the features of the
product offered to the customers by the HDFC. The lack of uniformity has been
observed across the industry as also by the same lending instutitons at
diferent times, including the relative periods of fixed Vs floating rates in
the dual rate loans. It is also observed that this wide variation in the
product features reflects lack of uniformity and transparency, not considered
healthy for the system"" NHB said in a circular issued on recently
(7-08-2012).
The
NHB circular added that in light of information gathered from HFCs NHB has
decided that instead of the time of loan agreement being the determining
factor, the nature of the loan at the time of pre-payment would be reckoned to
determine whether pre-payment charges will be applicable.
NHB
also said in circular, "This applies to all such dual / special rate home
loans being foreclosed hereafter. Further, it is also clarified that a fixed
rate loan is one where the rate is fixed for the entire duration of the
loan"" .
The
genisys of the dual rate housing loans lie in the stimulus package announced
after the 2008 global financial crisis.
In
terms of the package announced by the IBA (Indian Banks Association) a special
housing loan scheme was introduced whereby borrowers could avail housing loans
between Rs. 5 lakh and Rs. 20 lakh at 9.25% for the first 5 years. This offer
was bettered by SBI (State Bank Of India) which came out with its own scheme
where rates were even lower for the first year.
HDFC,
Chairman Mr. Deepak Parekh had earlier criticised such products as 'teaser
loans' as they drew in borrowers who were not fully aware of their liability.
However, given the competitive pressure HDFC introduced its own dual rate
scheme later. These schemes were subsequently discontinued following regulatory
(NHB and RBI) pressure.
Src:
TOI
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