Thursday, September 22, 2011

No Prepayment Penalty on Floating Home Loans



The Reserve Bank of India (RBI) in a meeting with Banks representative agreed to remove the prepayment charges on floating rate loans. The exact date by which this notification will be implemented is to be announced shortly. The move is aimed at bringing fairness in bank charges. Prepayment penalty in some banks can range between 1 � 3 percent on the outstanding loan amount. The removal of prepayment penalty will make it easier for customers to partly pay their loans in case they are able to generate surplus cash or shift loans to other banks if they get a better interest rate. Also, it will increase competition among banks. Already a few banks like Axis Bank do not charge pre-payment charges. Banks have also been asked to revive fixed rate home loan products, which have become almost a thing of the past, as they are increasingly focusing on floating rate schemes to protect themselves from interest rate fluctuations. The RBI is of the view customers should not be exposed to rate volatility and banks should be able to hedge their risk through appropriate instruments.

Source:- India Properties

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