The National Housing Bank (NHB) plans to come out with guidelines on charges when home loans are pre-paid not from the borrower's funds but by taking another, cheaper loan.
For pre-payments funded out of customer's own resources, the NHB had last year stipulated that no pre-payment charges should be levied.
To take advantage of lower interest rates, home loan borrowers often go in for mortgage refinance from banks and financial institutions. Lenders, both banks and housing finance companies, currently enjoy a free-hand in levy of pre-payment penalty when borrowers use this refinance option.
Guidelines soon
NHB is still undecided on whether or not home loan pre-payments financed by other banks and financial institutions should get complete waiver of pre-payment charges.
“We are looking into the situation of commercial refinance. Guidelines or a circular will be issued on this. We are co-ordinating with the RBI so that we can come up with norms that could be uniformly applicable to the entire housing finance industry,” Mr R.V. Verma, Chairman and Managing Director of NHB, told Business Line here.
Free choice
Currently, NHB regulates all housing finance companies. On the other hand, home loans provided by banks are regulated by the Reserve Bank of India.
The country's largest housing finance company HDFC had cautioned that there will be greater ‘substitutional' housing finance and not ‘incremental' housing finance taking place, if the loan is pre-paid because commercial refinance is available and there are no pre-payment charges.
Mr Verma said that NHB was keen to ensure that customers (home loan borrowers) are not unduly restrained from exercising free choice.
“The pre-payment fee should not restrain them (the customers) from doing this (refinance loans),” he said.