House financing companies have waived off the penalty on pre-payment of home loans

By | August 8, 2011

A recent press report said that the National Housings Bank (NHB) has waived off the penalty on pre – payment of the home loans. This would help the housing finance companies (HFC) to have an edge over banks during this festival season. Bankers have said that the Reserve Bank of India (RBI) should also introduce this kind of guidelines of waiving off penalty on pre – payment of home loan in order to avoid the housing finance companies from having advantage over them.

Mr. R.S.Sangapure, General Manager of Central Bank of India said that the RBI might also soon waive off penalty on pre – payment of housing loan which seems to be an important parameter for the customers to choose a lender.

The NHB has announced that HFCs should not charge penalty on pre – payment of floating rate home loans even if it is not paid out of the customers’ own resources but paid by borrowed money. However, fixed rate home loans would be charged pre – payment penalty. More than 95 per cent of the customers prefer floating rate home loans.

Currently only three banks – SBI, IDBI bank and Axis bank are not charging pre – payment penalty whereas the other banks such as ICICI and HFDC are charging a penalty of 1.5 – 4 per cent on the foreclosure of the loans. However, if the customers pay out of their own pocket they need not pay this penalty but they had to prove that the money came from their sources and not from the lender.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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