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Updated: October 28, 2011 18:11 IST

Pre-closure charge on housing loans set to go

K. A. MARTIN
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Safe now: Divert your savings to prepay the home loan comfortably, as the demon of prepayment penalty has been exorcised. Photo: K. Bhagya Prakash
The Hindu Safe now: Divert your savings to prepay the home loan comfortably, as the demon of prepayment penalty has been exorcised. Photo: K. Bhagya Prakash

The National Housing Bank issued a directive to housing-finance companies on October 19.

While housing loans are expected to become dearer with the recent decision of the Reserve Bank of India (RBI) to increase the repo rate by 25 basis points, the National Housing Bank has offered some consolation to home-loan customers through its October 19 directive to housing-finance companies that they should not impose a prepayment levy or penalty on pre-closure of housing loans.

Floating-rate loans can be pre-closed through money raised from any source, the directive says. In the case of loans on fixed rates, the accounts can be closed using money raised by the borrower only from his or her own source — any source other than a loan from a bank, housing-finance company, non-banking finance company, or financial institution.

Some time ago, the RBI issued a directive to banks, as part of efforts to improve customer service, to stop levying pre-closure charges on home loans, though the Indian Banks' Association has argued against the move. The directive, applicable to home loans on floating rates, has brought bankers together against the move.

The apex housing bank's directive came in pursuance of feelers put out to housing-finance companies exactly a year ago on the issue of pre-closure charges. The bank also warned housing financial institutions against offering different floating rates to their old and new customers.

The directive said: “Several representations/complaints have been received by the National Housing Bank against such practice … It is accordingly advised that the HFCs [housing-finance companies] should ensure uniformity in rates on a floating-rate basis charged to their old and new customers with the same risk profile, irrespective of the time of entry of the borrowers in the market.”

The bank observed that charging a higher interest on earlier borrowers in relation to the new customers put the former at a disadvantage and the practice was discriminatory. For the growth of a healthy housing finance system, it was important that pricing of products be transparent and non-discriminatory.

I checked with HDFC in last week (3rd week of Jan 2012) and they do not have any change in policies for pre-closure charges and the differential interest rate as per the original agreement as on the entry date (ie RPLR- x%, the x% is fixed on the date of entry). We still have to pay 0.56% of conversion fees to change your loan to a lower rate (ie new x%). What to do about this?

from:  Thomas
Posted on: Jan 29, 2012 at 19:13 IST
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