National Housing Bank scraps pre-payment charge on dual rate loans

MUMBAI: The National Housing Bank has scrapped pre-payment penalty on dual rate housing schemes. In case of dual rate housing loans, the pre-closure norm for floating rate will apply once the loan has been converted into a floating rate loan, after the expiry of the fixed interest rate period.

This is applicable on housing loans being foreclosed from now on.

Housing finance companies like HDFC and LIC Housing Finance will be affected by the move. The Reserve Bank of India, the banking regulator, has already removed pre-payment charges on dual rate schemes. "We will respect the NHB circular and will implement it," said an HDFC spokesperson. So, in case of a dual rate loan, housing finance companies will charge a penalty only if the loan is refinanced from another financial institution. "The move will have an impact on the companies. Banks will have an unfair advantage," said a senior executive of a housing finance company.

Generally, HFCs charge 2-4% of the loan outstanding as early repayment charges. This deters customers from closing the loan with the existing lender and move on to cheaper loans.

"Now, housing finance companies will not be able to charge any pre-payment penalty after the teaser rate loan is converted into floating rate," said Harsh Ropogta, fouder & CEO of ApnaPaisa.

"Unlike bank, housing finance companies are also not allowed to charge any pre-payment charge on fixed loans unless the fixed rate loan is being shifted to another lender. But, banks can charge prepayment charges on fixed rate loans."