PiMoney | Prepayment penalty on floating rate / dual rate home loans
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Prepayment penalty on floating rate / dual rate home loans

pre payment penalty fpr home loan

Prepayment penalty on floating rate / dual rate home loans

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In a major relief to home loan borrowers who have taken dual rate home loans which have fixed rate component in initial years and then converted to floating interest rate, also known as teaser loans, the NHB (National Housing Board) has waived off penalty on prepayment of such home loans.

This came after RBI early this week had issued a circular (DBOD. No. Dir. BC. 107 / 13.03.00/ 2011-12) titled ‘Home Loans – Levy of foreclosure charges/prepayment penalty’ prohibiting the prepayment charges on floating rate home loans.

A RTI was filed with RBI asking whether dual rate home loans at any stage of the loan tenure fall within the definition of home loans with floating rates. It further clarified that as per extant instructions in case of dual rate/special rate home loans, the provisions of this circular will be applicable from the date the rate of interest on the loan becomes floating.

RBI and NHB last year had already issued directives to bank and housing finance companies instructing them not to levy any penalty on prepayment of home loans in case of floating rates. Now they shall be forced to withdraw prepayment charges on both floating rate and dual rate home loans. However such penalty will continue on home loans taken on fixed rate. A home loan will classify as fixed rate loan if the loan remains fixed for the entire period.

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  • yogesh s s
    Posted at 12:26h, 23 December Reply

    Can you please confirm & clarify if I have availed teser home loan i.e. fixed for 3 years & then floating from HDFC LTD NBFC/HFC) & now if I am shifting my loan / o/s principle to State Bank of India after completion of 2 years but still one more year to go in fixed intrest rate period, they are charging me prepenalty of 2 % as am not doing foreclosure from own funds. Is this correct valid & as per RBI guidelines ? your quick revert shall be highly appreciated.

    • admin
      Posted at 16:22h, 23 December Reply

      Dear Mr. Yogesh,

      As per the regulatory guidelines, if you make a prepayment of your dual / teaser home loan in the floating rate period of the loan, there shall be no prepayment charges irrespective of the source of funds.

      However, if you make a prepayment of your teaser home loan in the fixed rate period of the loan, by way of shifting the loan to other lender, financial institutions can levy prepayment charges.

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