RBI has removed the penalty on the Pre-payment of Home loans. Reserve Bank of India (RBI) yesterday announced removal of foreclosure charges/prepayment penalty on home loans with floating interest rates.
In a notification, the central bank said that it had been observed that home loan borrowers across the board resented foreclosure charges levied by banks on prepayment of home loans.
“This is especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario,” the RBI said.
“As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source,” the notification said.
The removal of foreclosure charges/prepayment penalty on home loans would lead to reduction in the discrimination between existing and new borrowers and competition among banks would result in finer pricing of the floating rate home loans, the bank said.
Though many banks had in the recent past voluntarily abolished prepayment penalties on floating rate home loans, there was a need to ensure uniformity across the banking system, the statement said.
“It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/prepayment penalties on home loans on floating interest rate basis, with immediate effect,” it said.