Now No Prepayment Charges On Home Loans - PDF Download - CiteHR
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Dear friends, RBI vide circular dated 5.6.2012 (copy attached) has advised all banks not to levy any prepayment charges on home loans with immediate effect. Thanks

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This is indeed a very valuable input which will many home loan borrowers from private banks.
How about such directives to banks on charging same interest reates to existing customers as the ones offered to the new customers? If you have such circular, please post the same for the benefit of many of us.
Thanks & Regards,
Sandeep Varma
State Bank of India has announced this long back. Home loan borrowers of SBI can now opt for base rates instead of PLR by paying some charges
Thanks for valuable info. can you please confirm if the same is applicable for loans from NBFC like HDFC, Lic Housing finace, etc. They claim that this is not applicable to them.
IDBI is not charging any prepayment charges. HDFC is silently killing the borrowers on pre-payment
HI ALL, This is applicable to housing loans availed on floating rate of interest. What about housing loans taken on fixed rate of interest? Can any one clarify? M.J.SUBRAMANYAM, BANGALORE
Hiiiiiiiiiiiii.... This is indeed a very very valuable info. One of the best & beneficial decision by RBI in recent past. Thanks for posting. Regards Vinay S.
Mumbai: Borrowers with dual rate loans from housing finance companies will not get to prepay loans without paying the penalty for early payment.



The housing finance regulator—National Housing Bank—has issued a clarification allowing lenders to impose prepayment charges wherever loans have been contracted at a fixed rate and subsequently the rate has been revised to floating.

“We are going by the nature of the loan at the time of contract. If it is a loan where the interest rates are fixed at the time of the contract, it will be treated as a fixed rate loan. On the other hand, if the loan is at floating rate in the initial years, the norms of floating rate will apply and the borrower can prepay without any charges even if it turns fixed in subsequent years,” said R V Verma, chairman, National Housing Bank.

Verma said that there is no cap on the amount of prepayment penalty but lenders are bound to disclose the charges at the time of the contract. “Competition will ensure that there are no takers for a loan if a company fixes a very high charge,” said Verma.

He said that the differential in interest rates for new and old borrowers had come down after the NHB barred prepayment charges from last year.

From this most of the dual rate home loans are switching to floating rates and given that interest rates have risen, borrowers are discovering that their interest liabilities have risen significantly. HFCs are allowing borrowers to switch to lower rates for a payment of 0.5% of the loan value. State Bank of India is allowing home loan borrowers with floating interest rates higher than current rates an option to switch over to current rates after paying 1% fee.

The origin of the dual rate home loan is with the stimulus package introduced by the government after the Lehman Brothers crisis in 2008 when PSU banks came out with a special rate scheme devised by the Indian Banks Association. State Bank of India under O P Bhatt tried to outdo the scheme with a dual rate scheme which was criticized by HDFC chairman Deepak Parekh as teaser loan and a gimmick. Subsequently, HDFC came out with its own dual rate product. These products were withdrawn after RBI frowned on them.

Source:

Times of India, 9th June 2012
Hi Agarwal,

Thanks for the clarification. But... see what Mr. R.V.Verma says, (This is what you have posted):“We are going by the nature of the loan at the time of contract. If it is a loan where the interest rates are fixed at the time of the contract, it will be treated as a fixed rate loan. On the other hand, if the loan is at floating rate in the initial years, the norms of floating rate will apply and the borrower can prepay without any charges even if it turns fixed in subsequent years,” said R V Verma, chairman, National Housing Bank.

This means that the benefit of prepayment of loan dues without any penalty will be available only to those borrowers who at the time availing the housing loan chose floating rate of interest. As such, this benefit is not available to those who chose fixed rate of interest the time of availing loan.But the news says, as per your posting, borrowers are changing to floating rate of interest to take advantage of lower rate of interest. How this is possible? Should not the borrowers be properly educated in this regard? How HDFC and SBI are allowing this?

M.J. SUBRAMANYAM, BANGALORE
usually there will be no fixed fixed interest rates. normally there will be interest reset clause which enables the fin institutions to rest interest rates as per the prevalent rates. Most of the banks do it. However some of the banks are also giving an option to the borrower to convert the fixed rate to floating for a charge.

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