06 September 2011
Very Good News for Home Loan Borrowers!
What a welcome move from the RBI(Reserve Bank of India) to slash pre-payment charges on loan taking on floating rate of interest. Many borrowers had to be stuck up with home loans for many years. As we know home loans are of the biggest amount of loans taken by common man it was understood that closing ones loan was not easy even if you did collect the cash to pay back the loan sooner.
With the notice passed by the Reserve Bank of India about cancelling all pre-payment charges for borrowers having home loans has come as a relief. Since these pre-payment charges would account for at least 2% of the loan amount being prepaid, it was difficult and not financially feasible option for borrowers wanting to close their home loans earlier. When a borrower would opt for floating rate of interest they already take the loan at a higher rate of interest and also have to bear the brunt of financial changes taking place. Their EMIs making up ward moves are enough for them to be prepared for and with this stress according to financial consultants and housing finance institutions many people try to pre-pay their loan earlier. Many people as they improve their financial position over the years would try to pay off this large loans amount as soon as possible and the usual trend seen is that many customers of home loans try to pre-pay their loans in about 8 to 1o years.
The only disadvantage they had to face was that the lending institution would along with penalty for prepayment also charge a pre-payment fees for early closure of loan. This rule applies to only loans that have been taken on floating rate of interest. The fixed rate of interest loans are not mentioned in this clause and the borrowers having loans under this schedule have to follow the same until any next move from the RBI. But the housing finance institutions are allowed to take penalty fees for early closure of loans. This high prepayment charge would stop many borrowers from closing their loans even if they had the finances available for the same. So even though the rule passed states that there would be no prepayment charges for early closure of loans many financial advisors state that this would not be of much help tot he majority of borrowers as people wanting to close their loans earlier amount to only a 2 to 3% of the total number of borrowers today!