BackNo foreclosure fee, low rates to make switching easier
No foreclosure fee, low rates to make switching easier
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Home loan borrowers who have their loan on floating rate of interest have reasons to cheer. One, the Reserve Bank of India (RBI) in its monetary policy has come down heavily on foreclosure charges and two, just a day after the repo rate cut, home loan rates have started falling. So this opens the window for existing home loan borrowers to switch to a cheaper loan without paying any charges. The move aims at bringing about a parity in benefits for existing as well as new home loan borrowers.
Foreclosure charges
At present, you need to pay a prepayment penalty if you switch or prepay your home loan. These charges vary from bank to bank. A lot of times, this penalty weighs over the benefit of a lower interest rate in a new loan. However, this hurdle is set to go.
As per the report, foreclosure charges for prepayment of home loans were not in the best interest of the borrowers. The report said that various banks did not pass on the benefit of lower interest rates to existing borrowers when the rates fell. Such a practice coupled with foreclosure charges prevented existing borrowers from either enjoying lower rates with the same bank or switching to a lower rate in another bank.
RBI’s monetary policy statement says, “It is felt that the removal of foreclosure charges/prepayment penalty on home loans will lead to a reduction in the discrimination between existing and new borrowers and the competition among banks will result in finer pricing of home loans with the floating rate."
A move like this makes sure that there is uniformity in the system. Says Harsh Roongta, CEO, Apnapaisa.com, a loan portal says, “There were banks that volunteered to do away with prepayment charges. However, there were banks that still charged such a fee. Now RBI has made it clear that such a fee cannot be charged. Detailed guidelines are expected soon"
Cut in rates
The central bank also slashed its key lending rate, repo rate, by half a percentage point on Tuesday. Such a move is expected to bring down lending rates on various types of retail loans. In fact, on Wednesday, IDBI Bank Ltd reduced its interest rate on all loans linked to the bank’s base rate and benchmark prime lending rate (BPLR) by 25 basis points, making loans cheaper. The new base rate of the bank will be 10.50%, while BPLR will be 15%, effective from 20 April.
If you are stuck with a high interest rate and are not switching because of foreclosure charges, you may soon get a chance to hop on to a cheaper loan. This would need you to do your paperwork again. So start sorting out your papers now.
bindisha.s@livemint.com
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