Prepayment charges on home loans removed by RBI

After the recommendations of Damodaran Committee to relief the aggrieved customers by the prepayment penalty on home loans, RBI has announced to stop charging any penalty on the foreclosure of loans.

"It has...been decided that banks will not be permitted to charge foreclosure charges prepayment penalties on home loans on floating interest rate basis, with immediate effect," the Reserve Bank said in a communication to banks. 

 

This will prevent switching of customers from one bank services to another in lieu of lower interest rate and prejudices between existing and new borrowers."As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source," the RBI said. 

 

"Though many banks have in the recent past voluntarily abolished prepayment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system," it added.