The levy of a charge on borrowers for pre-closure of housing loans by housing finance companies (HFCs) has been considered further by the NHB in the light of subsequent developments and it has been decided that hereafter, housing finance companies should not charge a pre-payment levy or a penalty on pre-closure of housing loans, the regulator said in a notification.
In addition, the regulator has also directed all HFCs to have uniform and not differential rates of interest for old and new borrowers that have the same credit or risk profile.
The notification by the NHB comes amid a separate examination of the issue by the Reserve Bank, which is also considering a ban on the levy of pre-payment charges on loans by banks.
It is to be noted that a consensus was reached at the Banking Ombudsmen Conference organised by the RBI recently that banks should not impose pre-payment charges on loans with a floating rate of interest.
At present, there are about 54 housing finance companies operating in the country, including HDFC, LIC Housing Finance, Dewan Housing PNB Housing Finance and Sahara Housing.
The charges imposed by HFCs and banks on pre-payment of housing loans by borrowers is as high as 4 per cent in some cases.
According to the notification, HFCs cannot levy a charge for pre-closure of floating rate home loans even if the funds are borrowed. However, for fixed rate housing loans, the pre-payment charge will be waived only if the loan is pre-closed by borrowers out of their 'own sources'.
'Own sources' are sources other than borrowings from a bank or financial institution.
“This will allow the borrowers greater freedom to exercise their choice in borrowing from entities and different rates offered in the market. The pre-payment charges were restraining customers from moving around,” NHB Chairman and Managing Director R V Verma said.
“This will enhance the credibility of the housing finance system as well as the confidence of all stakeholders,” he said.
All HFCs are advised to ensure compliance with the notification with immediate effect, he added.In a separate notification, the regulator said it has been observed that some of the housing finance companies are offering different floating rates of interest to their old and new customers. Several complaints have been received by the NHB against such practices.
“We have told HFCs to apply a uniform standard and benchmark old customers who are already on floating rates and new customers entering the market today also on floating rates with the same risk profile,” Verma said.
“Charging of higher interest from old customers against new customers puts them to a great disadvantage, besides being discriminatory. The practice also generally lacks in transparency and fairness,” he said.
“For the growth of the healthy and sound housing finance system, it is considered necessary that pricing of the products by the lending institutions are transparent,non-discriminatory and objective,” he added.
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