Housing finance firms not to charge for pre-payment of floating home loans

Getting rid of your home loan will become more rewarding. The National Housing Bank (NHB) has directed housing finance companies (HFCs) to stop levying charges on repayment of all floating home loans ahead of scheduled tenure, with the exception when a fixed-rate home loan is taken over by another financial institution. The new directive by the housing finance regulator became effective from 19 October 2011, the date of notification.

The regulation will give relief to borrowers repaying home loans through their own funds. The new regulation also means that borrowers who have taken housing loans on floating interest rates will be able to switch to another lender offering lower rates without having to worry about any penal charges.

Recently, the Reserve Bank of India (RBI) had also recommended banks to stop charging pre-payment penalty on floating-rate loans, but it has not issued any directive yet.

The RBI's observation on the penalty levied on pre-closure of housing loans was part of the 10 action points to improve customer service at banks, which was released by the central bank after the Annual Conference of Banking Ombudsmen in September 2011.