Prepayment penalty on home loans to vanish soon

Prepayment penalty on home loans to vanish soon

Prepayment penalty on home loans to vanish soon

Floating home loan borrowers felt relieved with the banks agreeing to abolish the penalties for prepayment. According to RBI, the floating home loan takers constitute, one third of the total home loan takers. This decision was taken after a meeting between the RBI and Indian Banks’ Association (IBA) on Friday.

Banks earlier charged 2-4% of the loan amount outstanding as a prepayment charge from home loan customers. According to RBI about 95% of the floating loan borrowers have faced rate hikes 13 times before coming to a stop. With the increasing RBI rates, banks have been rais¬ing home loan interest rates, which raised the equated monthly installments of bor¬rowers.

"Banks overcharge their ex¬isting customers and the pre¬payment penalty prevents them from moving to cheaper competitors," says Harsh Roongta, chief execu¬tive of apnapaisa.com. "This will facilitate movement of customers and remove a major financial hurdle. Lenders will now either have to drop inter¬est rates for existing customers or risk losing them."

The top three home-loan providers, HDFC, ICICI and State Bank of India have already removed the penalties for prepay¬ment. This abolishing prepayment pen¬alties was one of the 10 action points adopted by banks at the annual conference of banking ombudsmen in Mumbai in ear¬ly September to improve cus¬tomer service.

Last Updated: Wed Dec 28 2011

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