Stop foreclosure penalty on home loans: RBI

Reserve Bank of India asked banks to forthwith stop charging penalty on pre-payment of home loans taken on floating interest rates. RBI held in its notification that abandoning prepayment penalty on home loans would lead to reduction in the bias between existing and new borrowers. The action can aid in finer pricing of the floating rate home loans. It was observed by Committee on Customer Service in Banks that foreclosure charges imposed by banks on prepayment of home loans were disliked by home loan borrowers as it works like a prohibitive practice deterring the borrowers from selecting cheaper available source. As per the committee the banks were found to be reluctant in passing on the advantage of lower interest rates to the existing borrowers in a falling interest rate situation.

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