Prepayment Charges abolished by RBI

POSTED BY manish ON June 15, 2012 COMMENTS (292)

This is a little old news. RBI has finally abolished Prepayment charges or penalty on home loans with floating interest rates. Borrowers can now transfer to new lender which provides them less interest rates without paying any kind of charges or penalty. Damodaran Committee on customer service in banks, RBI) has been observed that banks have been unfair in asking for charges when home loan borrowers want to switch to some other lender with lesser interest rates. Now if you prepay the loan from your own sources or through another lender, you only pay the outstanding loan amount.

Here are the excerpts from the circuler from RBI on abolistion of fore-closure charges/pre-payment penalty

2. In this context, attention is invited to paragraphs 81 to 83 of the Monetary Policy Statement 2012-13 announced on April 17, 2012 with regard to home loans on floating interest rates. The Committee on Customer Service in Banks (Chairman: M. Damodaran) had observed that foreclosure charges levied by banks on prepayment of home loans are resented upon by home loan borrowers across the board especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.

3. The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans. Though many banks have in the recent past voluntarily abolished pre-payment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system. It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis, with immediate effect.

Prepayment Charges removal will help !

This new rule will surely be taken in good spirit by borrowers and end the discrimination done by banks between old and new customers. This will also make sure that the interest rates become more competitive in the overall system.

Have you prepaid your home loan just some time back with charges ? Are you going to prepay the loan soon after this Prepayment Charges removal ? What are your thoughts about this new circular !

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292 replies on this article “Prepayment Charges abolished by RBI”

  1. Anand.M says:

    Hi Manish,

    I have a Pre-approved Loan from Citi Bank, As I had a credit card with them. When I asked them for Pre-closure of the Loan, They had applied Pre closure charges and the final amount was greater than the amount if I had paid the complete EMI. On Raising the Issue with Citi bank they were not budging. As far as I know the Pre-Closure charges were charged for the bank to compensate for the loss which it would incur on the loss of income due to the future interest. however the same cannot addup to be greater than the amount to be paid for the remaining Interest. Please help on any guidelines I can convey to them on this.

    1. Yes, generally the preclosure charges are some percentage of the outstanding balance ! .

      1. Anand.M says:

        However the pre closure Charges are exceeding the outstanding Interest amount. Is it legally correct.

        1. If its written in the terms and condition sheet. Check your agreement , what is written there !

  2. Dott says:

    The no penalty charge on pre-payment / pre-closure of loans is applicable prospectively or retrospectively?? I mean is it applicable for all home loans taken or only those taken after the circular???

    1. Its applicable on all home loans

  3. KAUSTUBH says:

    I am transferring outstanding loan amount from gic to HDFC but gic is charging 2% foreclosure charges on my balancing amount . can you suggest me how ill fight against them and what is the procedure to waive off this charges?

    1. Jagoinvestor Admin says:

      Hi KAUSTUBH

      HDFC Home Loan and GIC comes in the preview of NHB . Only those home loan that come under the preview of RBI cannot charge foreclosure charges. They are running according to rules in this situation. You need to pay the foreclosure charges.

  4. Ravi says:

    I have taken homeloan from syndicate bank in June 2012 @9.7%, now I want to switch to SBI bank @9.4%, Syndicate bank is charging 2% on outstanding principle (41 lacs) for transfer (takeover by other bank). is it correct ?

      1. Anand says:

        Dear Manish,

        As per your articles first para,

        “Borrowers can now transfer to new lender which provides them less interest rates without paying any kind of charges or penalty…..Now if you prepay the loan from your own sources or through another lender, you only pay the outstanding loan amount”

        And also as per the RBI Circular point no 3 cited above it is mentioned that, ” It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis, with immediate effect’

        So as per the above points,

        in Mr Ravi’s question that, Is syndicate bank correct in charging 2% on outstanding principle ? … how is it correct for the bank to charge 2% on outstanding loan. The RBI circular mentions that any kind of prepayment penalty is not allowed – So according to my interpretation even if it is takeover is from other bank Mr Ravi should not be charged 2%

        1. The above rule is for home loan. Are we talking about home loan here ?

          1. Anand says:

            Dear Manish,

            Thank you for your reply. Yes the above query by Mr Ravi seems to be for Home Loan. So is syndicate bank correct in charging Mr Ravi prepayment penalty of 2% as it is a takeover case by SBI. I amfacing the same problem, OBC is charging me 2% as takeover penalty stating that the funds are not thro your own source.

            1. I think they are correct as per terms and condition

  5. Neeraj says:

    If a company has not requested for renewal of working capital limits in existing bank and account was taken over by other bank after the expiry date whether earlier bank has right to recover foreclosure charges as per earlier sanction letter as effective date of those terms are binding till renewal due date. Moreover borrower had requested for enhancement of working capital facilities three months before renewal and advised the bank to renew our facility only if they are able to enhance the facilities, all the correspondence clearly shows it, now customer has not requested for renewal nor they have signed any renewal letter also there is no communication from the bank either for demand of documents for renewal or intimation of renewal, finally when they have written mail to the borrower after 10 days of expiry date , the very next day Pay orders by takeover bank presented to their existing bank. Also request you to confirm whether fund based or non fund based or both facilities are subject to foreclosure charges.

    1. Hi Neeraj

      Thanks for asking your question. However, I dont think I am eligible to answer your query as its either out of scope of my knowledge or its not related to money matter directly

      Manish

    2. divyansh says:

      Hello neeraj ,
      I Am Facing The Same Issue With kotak mahindra bank , they are charging us foreclosure even after expiry of cc facilyt period What Happened in your case Can you Please Advise ?

      We Are Thinking Of Filing a suit against bank for non returning of documents instead demanding foreclosure charges ,

      Can you PLease help us out what happened in your case
      em id : divyansh at live dot com
      my no
      9 8 9 9 . 58.0 .,009

      Divyansh

  6. Neelkanth says:

    Hi I have take the PL from Bajaj Finance in Jun 2015 at the time of disbursement bank said there is no any foreclosure or prepayment charges will be applicable. but in Jun 2016 I am going to foreclose my loan now bank is charging 4% foreclosure charges.

    I request you kindly provide me your opinion in this scenario.

    Waiting of your replay

    Regards,

    Neelkanth

    1. If your agreement with the lender says that there will be 4% penalty, then you will have to pay that!

  7. Ankit says:

    Dear Manish ji please help me
    i have a cc limit of state bank of patiala now i want to switch the bank and take over limit of Hdfc bank,HDFC bank pay accrude intrest and principle amount
    Sbp bank ask pay take over charges 4.25% is justify please reply

    1. Its there rules, you either take it or dont take it !

  8. subrataguha says:

    i am transferring outstanding house building loan amount from Indian Overseas Bank to LICI . but Indian Overseas Bank is charging 2% penalty on my balancing amount . can any body suggest me how will fight against them and what is the procedure?

    1. Is it not as per terms and conditions ? Why it is about fighting and not fighting . Things happens as per terms and conditions on the agreement which you have signed!

  9. kumar says:

    dear manish ji,

    i hav taken housing loan @9.6% from lichf in which they hv provided it to me for fixed term of 2 yrs then after 2 yrs for 9 years it will be floating int rate .Now SBI is providing housing loan @9.45% .and I hv came to know that as per rbi rulesany bank / lichf can not take preclosure charges during fixed term of 2 yrs? wheter it is correct ? i hv take 13 L from lichf @9.6% in month of november 2015 now i want to switch over to SBI @ 9.45 % whether lichf will charge 2% on outstanding loan amout or not.i am also not happy abt services of lichf ? it will be a great help for me from you if u can provide info with proof on my email? mksingh81067@yahoo.com

    1. Yes that is correct !

      1. kumar says:

        unable to understand what is correct?

  10. RAJIB says:

    I have taken a Used Car Loan from HDFC Bank in Jan 2013 for our Company, Shivshakti Engineering Company. I had written HDFC Bank for foreclosure of the loan but they are reluctant and gives sweet replies that their Bank Manager called us but it has never happened so. I had deputed my collegue to HDFC Bank counter at Kolkata and understood that we need to pay some foreclosure charges to the tune of 4% extra. I heard that RBI has passed a resolution that no extra charges can be collected by Bank for foreclosure of loan. Is it correct??? Can I approach the banking ombudsman for this or some other appropriate authorities? Please guide.

    1. Its only applicable on home loan

  11. varghese says:

    Dear Manish,
    i have taken an agri term loan from Hdfc bank, now i am planning to takeover the same loan to federal bank, which is of offering lower interest,. But when i asked about the out standing amount to be payed , they have provided the statement in which,they added the preclosing charges of 4.58% on the out standing balace to the outstantingamount. when i checked the new circular of RBI , i have found that , there is no preclosing charges for any type of term loans taken in the name of individual. so as an individual borrower will i get the advantage of the circular of RBI. Please advise me

    1. THat is applicable to home loan !

  12. Jagdish says:

    Sir, I have availed HDFC Loan against property 3 years ago.Now I would like to preclose LAP loan.Does the non payment of preclosure amount by RBI guidelines apply to LAP taken from HDFC.
    Thanks.
    Jagdish

  13. Nirod Kumar Das says:

    I have a housing loan with LIC HF co with Fixed ROI. The fixed period of 2 years is over. During fixed period LICHF charged 10.10 and now they propose to charge 10.5 which is around 1% higher that SBI. I want to switch over to SBI.
    Can any body clarify me whether LICHF will take prepayment charges even though fixed period is over.

    1. Yes, the prepayment charges will be taken

    2. kumar says:

      u can switch over to sbi as 2 yrs have been completed ?

  14. rinkee says:

    GIC HOUSING FINANCING IS NOT COMING UNDER RBI RULE .?
    CAN ANY BODY TELL ME PLZZ GIVE FAST REPLY

    1. No , its not a bank !

  15. rinkee says:

    as per rbi rule gic have not decreased the rate of interest rate by 5%. suggest me who are apllicabe ?

  16. rinkee says:

    i am transfering outstandin loan amount from gic to icici . but gic is charging 2% penalty on my balancing amount . can any body suggest me how ill fight against them . and what is the procedure?

    1. Hi rinkee

      This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that

      Manish

  17. Yash says:

    I have applied for the LAP with MAGMA FINCORP LIMITED , with specific condition that there should not be foreclosure charges , when ever i will close the loan. Accordingly, the company has issued me the sanctioned letter where they specifically mentioned in front of foreclosure charges as NIL, considering the conditions i availed the loan. Now when i m asking for the foreclosure statement from the company, the company is charging foreclosure charges of 4% plus service tax, which is an unjustified charges levied on our account. the company officials is not ready to edit it. Kindly guide how to proceed in this case further, as the jurisdictional area of the company will be kolkata, which will be very difficult to travel from rajasthan.

    1. Sue them . What else one can do if one party is breaching the agreement.

      Manish

  18. harish kumar says:

    i have teken personal loan in hdfc bank dated 0104 2014 plese forcloser charge

    1. Hi harish kumar

      This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that

      Manish

  19. nitin says:

    I had taken a lap from icici in personal name at floating rate but coapplicant is my firm and they are charging me 4% prepayment charges whether it can be waived with the help of rbi guideline

    1. I dont think it will be waived off ..

  20. Suman says:

    Hey Manish,

    I have a home loan with LIC housing finance and I am planning to foreclose the loan by paying off the money I have saved in my account. I got the foreclosure document that includes broken period interest, document retrieval charges, are those two valid ?

    You help is greatly appreciated.

    Thanks,
    Suman

    1. I didnt get your query

  21. Sandip says:

    Dear Manish,
    I have taken home loan from ICICI bank in Oct 2014 for the amount 29 lakhs. Only 60% loan amount has been disbursed by ICICI. Due to bad behavior of Executive of ICICI, I am thinking to transfer my home loan to SBI. I got online pre-approval letter from SBI for transfer of home loan. I would like to know, since the full loan amount has been disbursed by ICICI, can I transfer the loan to SBI.

    Regards
    Sandip

    1. You can do that. But I think once the loan is disbursed, why do you want to then do that. After that you just need to keep paying the EMI . DOnt carry that bad experience to future , its not going to help you much

      1. Sandip says:

        Hi Manish,
        So you mean that I can transfer the loan only when it is fully disbursed or I can get it transferred during partial disbursement? Other reason is SBI lowers their interest rates quickly as compared to other private banks and also they are offering zero processing charges?

        Regards
        Sandip

        1. Hi Sandip

          This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that

          Manish

          1. RikkyBhartia says:

            Hello Manish,

            First try to improve your English then comment on some query.
            Your comment show that you are full illiterate & dumbo who doesn’t have any knowledge about any thing.

            1. Hi Rikky

              Thanks for sharing that. Would like to learn where I was wrong and how can I improve. Please help

  22. sundar says:

    i took plot loan 3 years back with 12.25% interest, now i got a message that it will be increased to 13.75% because of construction not been completed, they told its new interest rate guided by rbi, is it true

    1. Hi sundar

      This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that

      Manish

  23. chandrashekar says:

    Hi,

    as per RBI pre closure charges to be waived off,but if still banks are charging then how we can complaint against the banks.

    1. Its only for the home loan . Is your home loan ?

  24. Vijay says:

    Hello Manish, Nice Article.
    Does this also applies to Plot Loan? Is there any difference in the way bank lists Home loan vs Plot loan. I have a Plot loan from DHFL and planning to close this by using a Top UP loan from my other Housing Loan.
    This is what I see on DHFL Website( I have not constructed any house on that)

    Prepayment Charges
    (Plot loans / Easy Land-cum Construction Loans) 3% in case the dwelling unit is not constructed on the plot within 3 years from the date of first disbursement of the loan.

    1. This article does not apply for plot loan

  25. ANIL says:

    I have a personal loan going on in my name for more than 2 years now, I want to close that account but as per agreement, there is a prepayment charge of 4 %. I just want to understand that post may,2014 notification of RBI regarding this, whether bank can still charge these charges – kindly advise

    1. Depends which lender is it, If its governed by RBI , then YES . but if not , then it will not apply

  26. Muralidharan says:

    Dear Mr.Manish’

    I have taken a personal loan from HDFC bank , want to foreclose the loan amount and they are charging 3%. which is very high
    Is there any chance to get a waive off or transfer in a better scheme

    Thanks,

    R.Muralidharan.

  27. Surender Arora says:

    I want to know that if I have taken up a LAP in my company name and wants to make some extra payments in my loan, still an NBFC will put some charges which is 4% of the remaining loan amount on the additional payment i make in my account. Please advice.

    1. Yes, they can put extra charges , but only as per terms and conditions in the agreement done with you !

  28. Capt. Gupta says:

    I’ve taken a loan against property of a certain amount from Indiabulls (IFHL) and they are charging a pre-payment penalty of 5.62% which I feel is totally unjustified as I’m getting at a lower interest rate from other sources. They took signatures on blank loan documents. Later on, they filled up various columns which were not acceptable to us. Instead of individual borrowers, they made myself,my wife and my company (pvt. ltd.) as borrowers.
    I want to know are they legally justified in charging such foreclosure at the rate of 5.62%.
    We have lodged a protest and would like to know what legal remedies we have against this kind of extortion by Indiabulls.
    Do consumers like us have any protection against this?
    Kindly let me know.

    1. Is it mentioned in your agreement ?

  29. Som kumar K P says:

    I had taken a loan of Rs 40 Lakhs from Dhanlaxmi Bank ltd. to construct a commercial building with a repayment tenure of 95 months. Now, after 44 installments I wish to close the loan. Will there be any foreclosure charges applicable on this? Kindly let me know.

    1. That would depend on your agreement documents .

  30. shanker says:

    hello sir,,
    i have taken home loan on sbh ..i have paid yesterday as a prepayment of sbh home loan (loan amount 9lks)..now sbh manager is asking prepayment penelty 2% (17080 Rs)
    please advise me sir…i am waiting for your replay..why should i pay penelty..Is it is legal .

    1. Ashish says:

      RBI has waived the prepayment charges for the Home loan with floating rate of interest only, kindly check your loan sanction letter, if it is fixed rate of home loan then you have to pay foreclosure charges.

    2. Hi shanker

      See whats there in your loan agreement . Was it written ?

  31. vinaypal says:

    Hello Manish Ji
    I have taken a personal loan of 1 lac rs. from fullerton india credit co. (a nbfc) in 2014 for 3 yrs. At the time of taking loan they told me rate of interest is 18% as flat rate of interest. They did not give me sanction letter, loan repayment schedule and loan agreement. Now i want to foreclose this loan. when i talked about the executives for closing the loan they gave me loan repayment schedule and account statement. In the loan repayment schedule the interest rate is 32% per annum and they are charging 7% foreclosure charge on remaining principal amount with 12.36% service tax. Could u help me sir about this. Is this right or wrong. If i want to make complaint about this where i can do so ?

    1. Hi vinaypal

      The mistake you did is not checking these details in the start . How can you not take the documents from them which has all terms and conditions ! . If you have signed the documents, I think they can charge it !

  32. bhavesh bhatt says:

    dear sir,

    i have a car loan with fix intrest rate with HDFC bank. i had already paid 12 emi to bank. at present pending loan amount is Rs. 205000/ i wants to pay Rs. 50000/ as pre payment. HDFC people told me they charge penalty @5.25% + servicetax on the prepayment amount (rs.50000/-) . is this legally right ? i read somewhere,RBI had give guideline for not charge any penalty for prepayment.

    pls guide me & reply.

    1. That RBI notification was for HOME LOAN and not other loans. If its part of your agreement, then you need to pay it !

  33. sanjay says:

    how i canvence icici

    1. Its not about convincing or not convincing .. You have to proof to them that if they creates trouble unnecessary , then they will be in trouble later

  34. sanjay says:

    i want to transfer my home loan from icici bank to sbi but icici bank has charge foreclouser charges to me but forecloser charges is abolishe by rbi please guide me

    1. Yes, its abolished !

  35. Manu Kammar says:

    Hi
    My name is Manu Kammar, I have taken takeover car loan from HDFC bank, which is fixed rate interest of 16.75 %. Before getting loan I got call from HDFC sale executive saying that interest rate is 11% and that is floating rate interest but when loan got released interest rate raised 16.75% and fixed interest. I enquired to bank customer they did not help me because I do not have any proof, when bank sales executive approached me to take sign for loan documents I asked him its everything blank and bank sales executive told me that you sign here we will fill up everything by given data from my Id proofs. Even though bank has deducted pre closing loan but RBI has removed for pre penalty and moreover my car loan is not per closing its a takeover loan, Which I am continuing the loan earlier which existed another name. Bank officer is not approving my concern, could you help me regarding my worries.
    Here My concerned is they deducted high rate interest for pre closing penalty which is takeover loan.

    1. I think there was some miscommunication on this . THe person might have shared the bases rate and not the actual rate they put .

      1. Manu Kammar says:

        Thank you Dear Manish.
        Here My concerned is they deducted high rate interest for pre closing penalty which is takeover loan. shall I get refund the pre closing penalty ?

        1. Yes you can talk to bank on this and first ask for explanation !

  36. peri joga rao says:

    Hi,
    I have taken a home loan from a nationalised bank (United Bank of India), with floating interest rate in Feb.2013. Now I have pre -closed the loan by a takeover from ICICI.But the nationalised Bank is claiming 2% preclosure charges from me now since the loan was paid by ICICI ie., BANK TAKEOVER AND NOT FROM MY OWN SOURCES. kindly let me know what is RBI Guidlines on this ?Also in my Loan offer letter from nationalised Bank (in feb 2013)they have mentioned that i have to pay 2% on outstanding loan Amount in case of other banks taker over.Pl.let me know i have to pay this or not (Based on RBI Directive)
    Thanks
    Peri Joga Rao

    1. Prepayment charges are now abolished . You dont have to pay this !

  37. Murli says:

    Hi,
    I have taken a home loan from a nationalised bank,with floating interest rate in jan2013. Now I have pre -closed the loan by a takeover from HDFC.But the nationalised Bank is claiming 2% preclosure charges from me now since the loan was paid by HDFC ie., BANK TAKEOVER AND NOT FROM MY OWN SOURCES. kindly let me know what is RBI Guidlines on this ?Also in my Loan offer letter from nationalised Bank (in Jan2013)they have mentioned that i have to pay 2% on outstanding loan Amount in case of other banks taker over.Pl.let me know i have to pay this or not (Based on RBI Directive)
    Thanks
    Murli

    1. No you should not be paying it ..

  38. Imraan. says:

    Hi dear,
    Actually I hv heard that all loan which is taken by an individual name. And won’t to foreclose the same. As per the new RBI/NHB s circular there will not be any foreclosure charges levied.. Is it right..?

    1. Yes , its applicable only for RBI governed banks

  39. Srinivas says:

    Hi,

    A per the RBI Circular and Press Release on May 7th, No Bank/NBFCs should charge the Pre-Closure charges for Personal Loans.But banks are still charging the same.

    Can you please advice me Is RBI is putting the things in wrong direction or banks are avoiding the RBI decision?

    I suggest please go through the circular again and guide me whether this is applicable to personal loans or not.

    All media news papers showing its applicable to personal loans as well.

    Confused with these statements…

    1. If its RBI notification , then surely no one should charge it

  40. rahul chawla says:

    Sir I am having loanagainst property from icici bank. I want to close my loan .bank has put preclosure charges of 4.44% . They say my company is co-guarantor in the loan so I have to pay foreclosure charges. Please help me on this.

    1. Is it as per terms and conditions ?

  41. Jyoti Handa says:

    Dear Manish,

    I have taken SBI realty loan in 2010, which had a condition to start the construction in 2 years from loan sanction.
    All of a sudden , i received a call from SBI that since I have not started the construction in 2 years, they will put a penal interest rate for last 2 years and debited my loan account for the same. Is there a provision to get any relief or a waiver on the penal interest from SBI. My view is that they should charge prospective penal interest after the date they sent me the notice rather than retrospective for the period of SBI’s negligence to notice and charge me the penal interest of the past. Pls. advice. Thanks!

  42. inderjit singh says:

    Dear sir,
    I have avail auto loan from ICICI Bank but at the time of preclosure of auto loan running at fixed rate of interest , bank charges prepayment penalty @ 5.618% on outstanding principal of Car loan. please refer us RBI Circular regarding waive of prepayment penalty.
    Regards
    Inderjit

    1. I think that was for home loan only !

  43. Javeed says:

    Hi Manish,

    I have personal loans in Axis bank and one in ICICI bank. I am currently outside the country and I want to pre close these loans. Can I transfer the money to respective Loan Accounts through Foreign Exchange and then raise foreclosure request. Will it work? If not whats the best procedure for me under this situation.

    Regards
    Javeed

    1. It wont work always .. its only allowed by some .. The best you can do is issue cheques to your loan account, send them to your branch here in India and then communicate things via email/phone

      Manish

      1. Javeed says:

        Thanks for the info Manish.

  44. Lokesh says:

    Hi
    I have taken Home loan through GICHFL Rs.1200000/-for 180 months with rate of interest 12.45, and I have already paid (33 *14752/-) installment and processing charges @2% now I want to closed my loan account so request you to pls confirm what is the (Pre-payment charges) i have to pay ( Final amount ) .

  45. Rashid Shaikh says:

    First of all thanks to Manishji for providing important guidance to us all.

    I had taken personal loan fron HDFC of Rs.247000/- & after deduction of processing fees, insurance they disbursed 239000/-, I ha already paid 14 EMI’s & now I want to close the loan by pre payment but as per their terms & conditions, i have to pay 8% as penalty on pre payment, IS penalty on personal is waived or % is reduced?

    Awaitng a quick reply.

    1. The prepayment abolishment from RBI is on housing loan, it might happen that you need to pay the prepayment charges on Personal Loan !

  46. Krishnan says:

    Hi Manish,

    I have a floating rate home loan from First Blue, which has been taken over by DHFL. Since Jan 2014, they have increased the rate of my home loan. Therefore, a few days back, I went to make a part-prepayment on my loan and was told by my loan officer that I can make only 4 part-prepayments on my loan in a year. Last year, I had made similar part-prepayments and this was never communicated to me, nor was I charged as per my understanding. I was also under the impression that RBI has issued circulars to prevent such practices. Has there been a change in the laws? If not, what do I do if they start charging me for part-prepayment of my loan in future? Kindly advise.

    1. Ravi says:

      RBI has no control over neither First Blue nor DHFL.

      1. Krishnan says:

        Then what about NHB’s under whom they function? Will they be in a position to address my grievance if DHFL decides to charge me for part-prepayment? Kindly advise.

    2. First a lot of RBI rules do not apply to these kind of companies as they are not banks but NBFC . So it would be good idea to talk to them on the rules part .

      1. Krishnan says:

        Thanks for your reply, Manish. As per your reply above, should I talk to DHFL or the governing body of NBFCs? And who is the governing body of DHFL? If I talk to DHFL, they will state that as per their rules, only 4 part-prepayments can be made in a year. Kindly tell me who I can speak or write to for clarifications on this issue. Thank you.

  47. anshu says:

    Hi Manish,
    I would like to know some information. Which home loan is better in all aspects…LIC HOUSING FINANCE OR HDFC HOME LOAN.?

  48. ATS Preeth says:

    For HDFC Home Loan Customers :

    If you are in Floating Rate – There is no charges for
    – Foreclosure (from any sources – this includes Take Over from other banks also) and
    – Part Payment (minimum 3 EMI’s).

    Just to make things easier, all housing finance division coming under NHB, should NOT charge for foreclosure & part payment. Read the circular http://www.nhb.org.in/Regulation/pol%20cir-43.pdf

    But if you are in Fixed or Special Teaser rates, then charges apply 🙁 .

    List of Housing Finance Companies coming under NHB … read this URL :

    http://www.nhb.org.in/Regulation/List-granted-Certificate-Registration.pdf

    1. Thanks for sharing that !

  49. Karthick says:

    Hi Manish, Thanks for your expectional job helping to guys on doubts related to finaicial issues. I have few questions. I got a loan from LIC for 25lakhs and I made a part payment of Rs.1.5Lakh in Feb 2013 they have charaged Rs 4000 as Lumsump fee. As per the rule from RBI is it applicable? Need your guidence on this. Thanks

    1. No , there should not be any prepayment penalty . Why was there any ?

      1. Yogendra says:

        If from self LIC do not charge, but if transfer to other bank, they are charging 2% of outstanding amount.

  50. Nandkishor says:

    Hi Manish!

    I have taken LAP from HSBC. if i have to repay the loan, will they charge penalty? and how much it will be.

    1. It its mentioned in the agreement, then they will

      1. Nandkishor Manjrekar says:

        thanks Manish!

  51. subba rao says:

    Hi Manish,
    I would like to know some information. What is the best time to pay pre-payment? how much difference will come when pay earlier ( with in 2 to 3 years) and later( after 5 years). Actually, by having loan we can get tax benifit and Interest subsidy from the ecurrent employeer. by considering these components what is the best stratogy?

    1. Subba

      Actually earliar you pay, your loan finishes faster. but considering tax benefits, its not always the best choice

  52. Siva kumar B. says:

    I have taken home loan of amount Rs.49,00,000 from LICHFL for term of 15 years on floating rate, but currently my ROI is 11.35% where as other banks are offering home loans for very less floating interest rates. So can I transfer my outstanding loan amount to some other bank which is offering home loan on less floating interest rate?
    Also please let me know if LIC would charge me the prepayment fees if the outstanding loan is taken over by other bank. And what other charges could be charged by LIC on me if there is a Loan take over by some other bank.

    1. Yes. LIC would be charging it , but no other charges !

  53. Atul Sachdev says:

    Can Bank Charge interest on home loan without physical disbursement of the loan amount. It means if the bank has prepared the demand draft on the seller name & the demand draft has not been issued to the seller due to cancellation of the deal. Can Bank still charge interest on the loan amount till the period cancellation request has been made without actual disbursement of the loan amount

    1. If its in the agreement with bank , then they can !

  54. Deepesh says:

    Hi Manish,

    I have taken 11 lakhs housing loan now i wish to pre pay 2 lakhs but the amount is in my wife account, Can i give my wife’s cheque if i do so should i pay penalty for the same? or shall i transfer to my account and pay it back?

    1. Better take it in your account and then pay . Also check with bank on their policy on this

  55. mr patel says:

    i want to know about car laon forclouser charges. bank can charge forclouser charges?it is only for home loan or any other loan forclouser can levied by them

    1. Prepayment rules are changed only for Home Loan

  56. Prashant Bajpai says:

    Dear Manish,
    I have borrowed mortgage loan from LIC Housing Finance Ltd
    2 months back.I want to make prepayment of this loan.Please
    clarify when n how is it possible to make prepayment,is there
    any limitation n are there any prepayment charges n what it
    will be.
    Thanking You.

    1. Its all written in your agreeement documents

  57. Rajan madaan says:

    Dear Manish ji,
    Can you please tell me the date when the rule of abolish of “HOME LOAN FORECLOSURE CHARGES’ had been passed by the R.B.I.

    1. Can you check the circular . It was around Mar-Apr 2012 .

  58. Rupesh says:

    Hi Manish,

    I have home loan from GIC at floating interest rate 10.5% however after 6 month they increased the interest rate to 12.5%, when I raised the concern they said 10.5 was the initial offer rate for first 6 months and later on it will be market rate which is 12.5 %.
    Can you please suggest what I need to do now.

    Thanks
    Rupesh

    1. Is it not as per terms and conditions ?

  59. Anil SV says:

    Hello Manish Sir,
    I have a Personal loan from HDFC bank, loan amount is 1,50,000 tenure for 48 months and have paid 8 months EMI 4446 rs. I am planning to close the outstanding amount now but HDFC bank is telling after 12 months only I can closed the loan with the 4% interest charges.

    please let me know what they are telling is correct as per RBI rules.

    thanks
    Anil S.V

    1. You should rather check the brochure and documents you got from your bank, it will clearly state the rules

  60. Pankaj says:

    Hi Manish,
    I am planning to shift home loan from LIC to SBI.For that Builder is asking letter of consent and SBI wants forecloser letter from SBI. How much time will take by LIC to release letter of consent ?Without letter of consent builder is not agree to give NOC for SBI.

    1. There are no clear defined timelines for these issues .. Better file a RTI and ask these issues , which speeds up the process !

      1. Pankaj says:

        Refering to above mentioned sitituation what is difference between letter of consent and a forecloser letter. Can LIC will issue both the letters?

        1. Where did you read those 2 terms ?

  61. Mahesh says:

    I have taken a homeloan of 33 lacs at 10.7 Fixed ROI from LICHFL. When I ask them to reduce my Interest Rate. They say that they cannot do it. When I ask the procedure for transferring my loan from LICHFL to SBI, they say that I need to pay Transfer Charges of 2% on the O/S Amt. Can you please me about the new rule which RBI has brought in about waving the transfer Charges? Also please tell me how would I contact RTI in case I need their help?

    1. Yes , this law applies to all the banks as of now … LIC being a housing finance might be trying to escape it for now .. better file a RTI now and enquire on this in black and white !

      1. Mahesh says:

        How would I contact RTI? Can you please tell me the procedure to do it?

  62. Adarsh says:

    Hello Manish,
    I have two queries
    a) Does RBI/NFB guideline no pre payment charges, applicable on LAP also, if loan is taken from NBFC
    b) I have taken LAP of 5000000 from IB, i want to increase its EMI but the company says it can’t be done as last year ITR does not support it, its strange for me as they were ready to give me a top up of 20 lac 6 months back
    Now nither they are letting me to migrate my loan nor they are ready to increase my EMI. Kindly guide me what should i do, As i have to wait for 2 long month to file my new ITR and my bank statements supports my extra earning from past 3 months

    1. They cant stop you from moving ..BEtter tell them you will talk to banking ombudsman on this and actually do !

  63. chandrakant nalawade says:

    i have taken home loan of Rs.4,55,000/- from punjab & maharastra co op bank before 3 years. now they are charging ROI @ 11.25%, so i want to shift it to LIC hsg at 10.25%, but no any bank/FI is willing to transfer the co op bank’s loan, why? still this bank PMC, directed me to pay 2% prepayment charges on shifting even after RBI guidelines. Can some one tell me whether co-op banks are not attracting the RBI’s rules??????

  64. MS says:

    Dear Manish
    I have taken a home loan amount of 12 lacs from HDFC bank on ROI of 10.5. I want to transfer it form HDFC to ICICI bank…reason behind is not good customer service by Hdfc …& also offered better ROI from ICICI. as you informed us that RBI abolished Pre payment charges..so will this transfer will come under Circular of RBI? Because i am doing Pre-Payment by taken loan from ICICI & giving it to Hdfc. please let me confirm ..Am I think correctly ?

  65. Deepesh says:

    Hi Manish

    I have taken a home loan of 11 lakhs from hdfc on 2011.i am planning to prepay 2 lakhs now, i have one lakh in my account and my wife has one lakh in hers. should i have to pay 2% extra fine for the one lakh taken from my wife account?

    1. Why dont you take that money in your account and then from your account only pay the whole money !

  66. Neerja Singh says:

    Dear Manish
    I have taken apersonal loan of 4,00,000 from standard chartered bank in Nov. 2011 for 3 yrs. At that time when we asked for foreclosure charges they told that right now it is 4% but soon RBI is going to abolish these charges and that will be applicable in our case too as well but as per that time guidelines, bank mentioned 4% foreclosure charges in agreement. Now, when we called the customer care of bank to foreclose the loan in January they said that foreclosure charges are abolished only for home loans. We have to pay remaining principle(P)+4% of P (I)+12.36% of I in total to make full and final payment. Can anybody help us? Please suggest. Thanks.

    1. Thats correct. Its abolished for home loans only

      1. amol paygude says:

        dear manish sir,

        I have taken home loan from flutron india credit company at 15.5% for 20 years period, at 2012 now i have already paid 14 emis i want to transfer these loan to hdfc at 10.25% i have completed all process now flutron ask me forclosing charges are 4% which is too much i already explain them RBI rule they told me that it is not applicable to them,what to do inthis case as i alrady paid 5laks against intersest & only 20.000/- principle deducted.
        pl guide against these.

        waiting for ur reply.

        regards,

        Amol Paygude.
        9158884558

        1. Yes, RBI rules are not applicable to FIXED RATE loans . Is it on fixed rates or floating rate ?

          1. amol paygude says:

            sir this is fixed rate but 4% for forclosure is too much?
            if any thing possible
            pl reply waiting for ur reply

            1. You signed it , right ! .. so you agreed for it , now why to complain 🙂

            2. amol paygude says:

              sir this is true, that i signed, but at the time of signature , concern sale & branch mgr, told me that at the time of forcloser of loan you no need to pay forclosing charges.
              but unfortunately this is verbal commitment.

              regards,
              Amol Paygude

            3. Verbal never exists !

  67. Murali Krishnan says:

    Dear Mr. Manis,

    Whether Prepayment Charges abolished for old loans also. I have taken my home loan from a psu bank 2 yrs back (floating interest rate based on bank’s BASE RATE). Now i am trying to switch the loan to SBI which is 1.10% lower than by current interest rate (from next year the difference will be 1.35%).Considering my loan amount of 4o lakhs, this will be huge saving. But the bank is not cooperating me in the process. The bank guys not even willing to give the pre-closure letter which is base document for shifting my loan. Also the manager says that there will be prepayment charges since the RBI rule is for only new loan and my loan sanction letter has mentioned the prepayment penalty as 0.5 %. Does the prepayment charges clause mentioned in loan sanction letter is still valid ?.Please guide me how should proceed in this case ?. Your comments will be helpful to me.

    1. Its abolished for all the loans now , just because its there on your agreement does not mean you need to pay it !

      1. Murali Krishnan says:

        Thanks manish for your quick reply. How to proceed if the current bank doesn’t coperate in switching the loan like not giving the preclosure letter (which is base document for the new bank), not showing original document.

        1. If its a PSU , use RTI to ask your questions and they have to give RIGHT answers ! , if its pvt , complain to banking ombudsman .

  68. Deb says:

    Dear Mr. Manish,
    I had some bad credit card history sometime in 2007-08, I had some 6 credit cards with me out of which I had settled 2 of them after negotiation with bank and rest 3 are closed normally paying all pending dues. Now, for the last 4 years, I am having only 1 credit card which is of SBI and I have totally clear record for that using this card for last 5 years. In CIBIL, my score is 744 out of 900 currently and I am trying for a home loan.

    I have recently applied in HDFC & LIC, they both have rejected my loan application based on past credit history whereas I dont have any liability currently. My salary is more than 6 times the EMI payable and I have a stable job, more than 5 years in the present organisation.

    I dont know what to do now. Where to apply for home loan? I have applied in FIRST BLUE HOME FINANCE LTD and they are saying that they can provide me loan. But, I am not sure whether it will be good to take loan from FIRST BLUE HOME FINANCE LTD. I am in deep trouble and confused. Can someone please help? Also, is FIRST BLUE HOME FINANCE LTD governed by RBI guidelines?

    Thanks.
    Deb.

    1. Deb

      Your past credit history is to be blamed here , you will need to clear the outstanding about of those “settled” loans first and over some months, your score should improve. Did you apply for your report ?

  69. Rishu Vyas says:

    Dear manish,
    I availed a lap at 13% floating as per agreement but am being charged at 13.5% as of now, which i realised after an year. Now I dont feel comfortable with this NBFC and want to forclosure the loan but as per agreement they charge 5% . I want to close because they have not dealt fairly. What should I do? The foreclosure amount is large but the nbfc has made a mistake.
    Please advise.
    Regards,
    Rishu Vyas

    1. First get clarity on this part that why are they charging 13.5% instead of 13% ? It might happen that you are making assumptions !

  70. kartik says:

    hi manish
    i took housing loan from hsbc bank for 74 lakhs on june 2005 for 7 % and i have repaid 7800000 and the outstanding principal is 6850000 and my account is became npa and even after that i paid 1500000 in september now is given a public notice for sale . what to do now

    1. I am not sure what do you want to ask here ? Everything is happenign as per terms and conditions , right ?

      1. kartik says:

        no when they declare the account as NPA they cannot take the interest . But had ever i been paying is going to interest. Every 2 month they are sending notice of sale .

        1. Better file a complaint with banking ombudsman !

  71. Anil says:

    Hi,
    Is this rule (No pre closure charges) applicable to Personal Loans?
    HDFC is saying that there is a pre closure charges of 4% on personal loans.

    Please advice.

    Thanks
    Anil

    1. Check your agreement with them, it should mention that. Else its not there !

  72. Shirish says:

    Hi,
    thanks, for the article. How soon can the pre-payment be done after the EMI starts? eg. i have a loan from LIC whose EMI started from Mar’12. Can I prepay some amount now? or do i have to wait for some period.

    Thanks

    1. This will be clearly mentioned in the agreement .

  73. Divya says:

    Hello Sir,
    I have a loan from HDFC bank, loan amount is 50 lakh and emi is going around 56,000 and for 15 years.
    Now at present loan amount 39 lakh is remaining.
    I want to reduce my EMI and at the same time Increase the no. of years.
    Is it possible.
    Please advice me

    1. It will be tough now , but you wont be able to reduce it a lot , from 56k , it might come down to 45 or 40k , not more ..

  74. Mujibur says:

    Hi Manish,
    I am going to take home loan, please tell me which bank is giving less interest as well no preclosure charge

    Thanks,
    Mujib

    1. You need to talk to many banks to find it out !

  75. KC Choudhury says:

    Sir,
    I had taken home loan from LIC Housing Financial Ltd in January,2012. Now I have decided to take over the entire loan amount by SBI. LICHFL is intimating the outstanding amount including the pre-closure charge of Rs.30000. Whether RBI guidelines are applicable to LICHFL wherein pre-closure charges have abolished from 5/6/2012
    Thanking you

    Yours faithfully
    KC Choudhury

    1. it should be applicable to them also , check with RTI if they dont respond properly !

  76. Phani M says:

    I am trying to closing an LICHFL home-loan and I find that the foreclosure and handover of documents will take 1 to 2 months. Anybody knows if this is a normal delay? I wonder if this is the bank’s way of circumventing and/or protesting RBI’s ban of forclosure surcharge. The delay in documents delivery means that I cannot complete a sale nor get the sale-proceeds. Effectively, I lose the interest on the amount generated from sale.

    1. No idea on that . you should better discuss it on our forum – https://www.jagoinvestor.com/forum/

  77. Inder says:

    I have a land loan with HDFC. Earlier whenever i used to repay no charges were applied but this time they charged 2% extra citing land loan. Does RBI no prepayment charges does not apply in this case.

    1. I am not sure on this . check on our forum https://www.jagoinvestor.com/forum/

    2. Karthik says:

      Hi Inder /Manish
      I also wanted to clarify on the same , does te RBI norms apply to Land loan or only to housing loan. Some bankers claim that in the sanction letter they give as 0% pre-closure charges for housing loan( even though you avail only land loan) .But at the time of pre-closure they charge 2% on the outstanding it seems.Please clarify this point especially with Axis bank

    3. Karthik says:

      Hi Inder and Manish,
      I have the same clarification . as per RBI norms is there any pre-closure charges to the land loan or the 0% pre-closure is applicable only for the home loans? Axis banks states they would mention as 0% charges on pre-closure of housing loan in the sanction letter (altough you apply for Land loan) at the time of closure they might charge 2% citing that clause is applicable only for housing loan and would continue to charge 2%. Please clarify.

      Also what is the meaning of pre-closure – does it include part payments as well or only full closure of the loan before the tenure?
      meaning if I take 40 lakhs for 10 yrs and I part-pay 10 lakhs after 1 st year can will they charge 2% on the balance 30 lakhs ? and after 6 months i pay another 5 lakhs , they charge again 2% of banalce 25 lakhs ? how does this pre-closure or part payment works … please clarify..

      1. Karthik

        I am not clear on this at the moment, please open a thread at our forum to discuss this , your issue will be solved for sure – http://www.jagoinvestor.com/forum/

  78. G.C.Jayakumar says:

    Sir I Have taken a home loan from karnataka bank based on first year fixed and following 14 year on floating charge basis.Now I Am planning to tansfer my loan to another bank namely SBI so now karnataka bank is asking me to pay a sum of 1% on the loan amount as take over charges.Now i want to know whether there is any kind of rules such as to pay 1% penalty as take over charges to karnataka bank if there is any rules kindly give me information specifically as soon as possible.(if you send me email it is better)

    1. Just check your agreement, it will be mentioned there !

  79. anand nayak says:

    Hi Manish,

    Does this rule of no foreclosure charges apply to loan against property as well?

    Regards
    Anand

  80. Chandi Prasad says:

    is they maintain the slabs for full tenor?
    Or they combained both slabs and increase the rates in remaining tenor?
    or India bull will decide on customer to customer variation interest rates?

    1. I suggest to discuss this at length at our forum http://www.jagoinvestor.com/forum/

  81. Chandi Prasad says:

    Hi Manish,

    I m going to take home loan from India bulls that is rite now interest rate 10.25 for 2500000.
    Now my question is that in future how they increase the interest rates. for example: they have 2 slabs that is upto 2500000 – 10.25 and above 2500000 lakhs 10.75.
    a)If RBI increase or decrease the interest rates how India bulls increase or decreases interest rates…?
    1)suppose to increase 0.25.
    2)they will increase 10.25+0.25 = 10.50 for upto 25 lakhs slab
    3)and 10.75+0.25 = 11.00 for above 25 lakhs slab?
    Please help me out?
    Thanks in advance.

    Thanks
    Chandi Prasad
    8904416139

    1. Chandi Prasad says:

      Or they combained both slabs and increase the rates in remaining tenor?
      or India bull will decide on customer to customer variation interest rates?
      Please help me out.

      Thanks in advance.
      Chandi Prasad.
      8904416139

    2. Yes, this is how it will workout !

      1. Chandi Prasad says:

        Hi Manish,

        Your talking about which point?
        Pls reply.

        Thanks in Advance.
        Chandi Prasad

        1. They can increase the rates , when the govt does it .

  82. Abhijeet says:

    Hi Manish,

    I have a residential land which my parents had bought and it is registered on my name. And, I also have a home loan running on floating rate.
    Can I sell the residential land and prepay my home loan?
    Do you have any idea, what are the tax implications etc. if I do so?

  83. kamal sabharwal says:

    this rule is applicable for personal Loan Please advise

  84. Richard says:

    i had taken personal loan 2 lac (5yrs EMI) from hdfc bank with int 14% and Emi of 5106 per month. Now after 6 months went i contact the bank for preclosure bank asking to waiting till 12 months to do the preclosure. What is the guidelines for minimum period for EMI to be paid for preclosure.

  85. Vivek says:

    Dear Manish,

    I have taken a loan from HDFC IN 2009, which is now at floating rate of 10.75%. I want to part prepay the loan from my PF.

    In such case will bank charge prepayment penalty.

    1. It should not charge now after the recent RBI guideline !

  86. Swastik Sant says:

    I would like to know if prepayment premium has to be paid for a loan whihc was settled prior to this notification by the RBI. is the present notification by RBI on prepayment premium prospective or retrospective. Please give me correct legal View

    1. Its only for future settlements now

  87. Kashinath Vajpai says:

    Dear Manish: I am impressed with the kind of responses are coming from you to the people asking about HL. I have following inquiries :

    1. I have a Housing Loan of 27 L from HDFC as Adjustable Rate Home Loan on floating interest. The EMI will start from this month end (30 Sep 2012). I wish to go for a pre-payment of about 8-9 L during Nov 2012. Will HDFC charge me for pre-payment in any manner. Is there any clause like 3 months of EMI should be paid first.
    2. What is Adjustable Rate Home Loan (ARHL) and Accelerated Repayment Schedule (ARS)? Any clue about them and in my case can I switch to ARS in case needed to go for major re-payment schedules.
    3. When the HDFC asks for bank statement, what does it means? The source of income from where the pre-payment is coming? And how important is this?

    I appreciate your response on these.

    Thank you so much for your time and best regards.

    1. 1. Yes , it might if its written in terms and conditions

      2. No idea

      3. Yes it matters , only if you are paying from own sources, they dont charge prepenalty .

      I think you should discuss it in length at our forum – https://www.jagoinvestor.com/forum/

  88. sajad says:

    Dear Manish kindly reply my comment

  89. sajad says:

    i had taken personal loan 3 lac from hdfc bank with int 13% and Emi of 10500 per month.Now after 5 months i want to pay the loan amount back .Whether i have to pay interest of 5 months or more

    1. You just need to see what is the “outstanding amount” . You need to pay that and the prepayment penalty charges if any

  90. Sunil Bhatt says:

    Hi Manish,
    I have taken a loan of 6,50,000 from Syndicate Bank in August 2005, with an EMI of 6500 for 20 years. Interest at that time was 7.75 or 8%, floating. It is almost 7 years to pay Rs. 6500 montly and when I recently checked the outstanding amount by statement, it is showing 5,80,000 more to be paid as I want to make a prepayment. It is shocking that I just paid 80,000 for the last 7 years. What should I do in this case, please guide me.

    Thanks and Regards,

    1. Sunil

      thats how it works . in long term loans, in the starting year , your EMI contains much of interest and not principle ! , there is nothing wrong from bank side, thats the reality !

    2. Sudheer Bhat says:

      Hi Sunil,

      What you can do is to do a part payment to your loan. If you have ready cash say 1-2 lakhs in savings with you which you do not intend to use in near future, you can pay towards the loan. The outstanding principal will be reduced as well as the loan term and interest. You can also increase the EMI amount if you have the ability to do so.

      I have done this for my home loan taken from ICICI.

      Thanks,
      Sudheer Bhat

  91. siddharth says:

    I have taken 21,00,000 Home loan (floating interest rate) and 20,00,000 loan against property on floating interest rate for construction of my house. I want to shift the loan to other bank for which IDBI Bank is charging me 2% each as prepayment penalty + service tax . Kindly guide me

    1. That is now abolished. what are they saying about it ?

      1. siddharth says:

        Dear Manish

        Kindly guide me how to handle the bank, as they have clearly mentioned the penalty in foreclosure letter issued to me.

        1. You have signed the papers right ? So you agreed to it, now you are binded by law. cant do anything !

  92. S.Prakash says:

    Dear Manish,

    I have taken a Housing loan of Rs. 7,65,000/- from LIC Housing finance 4 years ago. Now my outstanding loan amount is 5,30,000. The loan will terminate in 2021. I have invested around 6 lackhs in FDs. I am in 20% tax bracket. Is it wise to repay(prepay) the entire loan amount of Rs. 5,30,000/- and close the loan account or continue the EMI Payment of Rs. 8713/- pm. Kindly advise.

    regards,

    1. If you do not take into consideration tax benefits, then yes paying off the loan will make sense

  93. ramesh says:

    Hi. I just wanted to know. I have home loan of 130000 and I have taken this loan two years back when interest rate was 8.25%. But now it has increased to 11.75%. Bank has given an option to conversion of interest rate of 10.25% with converstion fee of around 7500, which is presently given to new home loan customers.Can some one suggest me is it better to go with it or not.

    1. Which bank loan is it ? Recently RBI has made sure that there should be no fees charged for moving from higher interest to lower one https://www.jagoinvestor.com/2012/06/prepayment-charges-abolished-by-rbi.html

      If the bank comes under NHB , then they might charge.

      1. ramesh says:

        HDFC Bank.

        1. Yes HDFC will charge for it , see others comment on this thread !

  94. abhijit says:

    I have taken an housing loan of Rs. 700000/- i have paid my premuims for three years. @13.75%. my total outstanding dues is Rs.675000/- if i pays my total outstanding dues…how much amount i have to pay?
    will interest @13.75% would be chargeble on total dues…or any penalty i have to pay?

    1. As your total outstanding is 675000 , you will have to pay that much only if you are paying from your own source !

      1. abhijit says:

        thanks for the same…

  95. Deepak Arora says:

    Hey Manish,
    Many Thanks for this forum.

    I have a home loan from HDFC, if I get or borrow some amount from my cousin and use it to foreclose would that be chargeable.

    Regards,
    Deepak

    1. I guess yes , prepayment is FREE only if you pay from your own resourses. Dont tell bank that you took it from your cousin, just ask your cousin to transfer to your bank and later you repay him

  96. Satish K says:

    Thanks for the response – Umesh and Manish.

    I am already pursuing converting the loan from fixed to floating – hope that goes smoothly.

    Regards,
    Satish

  97. Satish K says:

    Hi Manish,

    I have a loan with ICICI Bank on fixed rate of interest. As pointed by you (or some other member), they are charging a 2% penalty on foreclosure of the loan for fixed rate of interest. However, as per the NHB guidelines, they should not charge the same if the loan is being closed out using my own sources and if I am not taking any help from any financial institution. When I presented the NHB circular to them, they claimed that the NHB circular is applicable only to Housing Finance Corporations and not to banks. Since my loan is from ICICI bank, they say that I will have to pay the 2% penalty (which comes to almost 50,000 Rs). I am totally miffed by this and wanted some expert opinion on this. Can you please share your thoughts.

    Thanks
    Satish

    1. Yes they are right , they are not governed by NHB rules, its RBI rules which apply to banks

      1. Satish says:

        But isn’t NHB a wholly owned subsidiary of the RBI? If so, then wouldn’t the rules of NHB also apply to banks? Seems a little strange to me.

        1. Thats a good point actually ! .. NHB is wholely owned by RBI, but a lot of times it happens that other identity can have its own rules , not sure on this , you can discuss this on forum : https://www.jagoinvestor.com/forum

    2. Umesh says:

      Hi Satish,
      I have just foreclosed my loan with ICICI bank with no prepayment/foreclosure charges.
      I realy found the experience hasslefree and pleasant(wasn’t expecting!), as I had to go just once to my nearest branch and collected all documents within 4-5 days from the same branch.
      The rate was floating at 11.5% after march’12(till then it was under 2 year fixed rate).
      May be you can try first converting your fixed loan to floating and then foreclose. Nowadays banks offer more of floating rates and shy away from offering fixed rastes, so they may charge a little or nothing for this conversion.

      Good luck.
      Umesh

  98. Irshad says:

    Hi,

    My current loan from Axis is @12% floating ROI.
    I got 2 options now but a bit confused which one to go for

    1. Option1 : Pay Axis bank around 10K & bring down the ROI to 10.75
    2. Option2 : get my loan transferred to other bank. (Although Axis doesn’t charges any penalty on foreclosure but only if its self paid & not transfer, but considering recent RBI orders, they might not charge for transfer either. Any idea guys ?? )

  99. Kamalakar says:

    I also Wanto to know About Charges HDFC taking To chg Interest rate For Existing To lower One interest (Interest changing as per market )
    Is there any Circular Regarding This

    1. ASk to HDFC directly , they will update you on this . Also in comments section a lot of people have clarified this

  100. Rashmi says:

    This is a good move but sadly, it does not apply to teaser rate loans, wherein a fixed home loan interest rate is offered for first few years later converted to floating rate.

    I know for sure in case of Housing Finance companies like HDFC that are governed by National Housing Board. The NHB circular dated 4-4-12 (which circular is also available on NHB website) clearly says that in case of dual rate loans, only if the prepayment is from own sources, will the prepayment charges not apply. In case one wishes to foreclose the loan by switching to another bank, the prepayment charges will be applicable. Happened in my case (dual rate / teaser loan) wherein a huge prepayment penalty detered me from switching to another bank.

    Rashmi

    1. hmm.. thanks for this update . you have very clearly explained it to us .

      1. keshavnad says:

        Want to share one more thing in respect of dual rate loan how Housing Finance companies are misusing it they are offering fixed for first 3-6 months later it gets floating as a result they are trapping the customers so that they don’t move out to other lender.

        1. Thanks for your views on this fixed – floating interest rate

  101. vijay says:

    Hi,

    I have a PPF account with SBI opened few years ( 5yrs ) ago made some investment for 1 lacs and i did not make any further investments after that.. will the account be active?.. i read in this blog which says RS500 has to be made every year for the ppf to be active. can someone recommend if i need to continue with the same ppf account or can i open a new one in ICICI which gives me the option to investet ppf online.is it okay if the same person hold two diffrent ppf accounts?

    1. Vijay

      You cant open two PPF account, better activate the old one .. you will need to pay just 3k approx for that and then transfer it back to ICICI if you want

      1. vijay says:

        Hi Manish.

        Thanks for the reply. is 3k is a penalty or will it be added to my existing PPF account? i came to know that 500Rs is required to make the account active only now from ur website. Thanks for all ur posts.

        Vijay

  102. Ritesh Kumar Singh says:

    Hi Manish,
    Thanks for a good article once again !
    just wanted share with all the readers that I had just prepaid my Home loan around 2 months back with axis bank and there was no prepayment charges for same. though there were couple of rounds to the bank (Axis Bank retail centre) but the process was smooth and i have got the papers after 1 month also. The customer care was quite supportive during the entire process.
    I had prepaid the Home Loan as my floating rate was 12% and no sign of reducing, though I assume new loans are being provided at 10.25% by same bank.
    Thanks,
    ritesh

    1. shobha says:

      Hi,

      Yes, even I had a Home Loan with Axis and have been Prepaying and finally foreclosed it last week without any extra charges.

      The entire process is very smooth and without any Hiccups with constant Msg’s and Mails from their side on loan status, outstanding and so on.

      Only thing, I missed from Axis bank was, that I needed to Physically Visit them every time. If it was online like SBI and some other banks, it would have been Perfect.

      Regards
      Shobha

      1. mm .. thanks for sharing your experience with Axis bank

  103. anita says:

    hi, I had taken a loan from india bulls, Rs, 40=Lac for 120 month, emi will start from 1-4-2013, when i aply , Jan, 2010 the intrest rates was @8=25% , but india bulls not send me sensetion letter, only a letter in this letter 10.25% rate of intrest , so now i want finesh this loan , what i will do , pls help me

    1. I dont understand your question , you want to finish the loan , so what is the question here ?

      1. anita says:

        hi,
        yes i want finesh my loan up to 50% before Emi start , (1/4/2013) .how i can do.
        anita

        1. Pay off the 50% outstanding , that will reduce the EMI

  104. Chetan Pujara says:

    Hi Manish,

    It is really a boon for Home Loan borrowers like us.. Infact I use to prepay small amount of money fapart from the regular EMI and LIC used to charge 2% penalty every month on month… Atleast I am Happy finally RBI has taken a correct decision. I will start making Prepayment on the principle again. Thanks for the Info…

  105. Suresh Kr. Ray says:

    Manishji, Thanks a lot for ur afforts in keeping us with lattest updates.

  106. Muthu says:

    “home finance companies like HDFC” – what does home finance company means to? Is it that such banks will not strict to RBI’s policy and rules? Can anyone please help me out here.

    1. Nothign like that .. what is the exact issue ?

  107. Muthu says:

    AXIS Bank doesn’t collect any pre-closure charge for any type of loan inlcuding Personal Loan. I have borrowed 3lakhs from AXIS and paid a part of amount few days back and i didn’t pay any pre closure charge.

    1. Yea Some banks at their level might not be charging it , which is really a good think , but this rule is by the RBI for all the banks

  108. Sudarshan says:

    I have taken Home Loan in HDFC only… There is no prepayment charges (took the loan few months back only).

    1. Yea .. This must be because of this same reason !

  109. Pandaba Kumar Singh says:

    Mr Manish Good afternoon,

    Very well suggestion u r giving and this is most well come ,but one thing when u r giving valuable idea to any customer plz advice them to share among his/her friends/relatives for better knowledge and it should be popularized in rural area also where % of knowledge regarding banking ideas is very poor.

    thanking u
    P.K.Singh

    1. Yea .. we request all the people to really spread it !

      1. Pandaba Kumar Singh says:

        Good evening Mr.Manish,

        Thank u for ur reply & I m very much impressed on your reply,plz advice me how i will be able to serve for the poor people of our country as u know very well that most of the Indian people are living under below poverty line,how they will be benifitted as survival is too difficult in rural area ,plz do some thing for them,thanking you.

        P K Singh

        1. Will surely let you know when I need any support !

  110. prabe says:

    I just hope NFBC under whom HDFC ,LIC and other come under issue a similar order so it will be easier for all.

    1. Which NBFC are you dealing with ?

      1. prabe says:

        im dealing with HDFC they dont have pre payment charges when paid from pocket but charge if shifting to another institution

  111. Ramesh says:

    Hi
    I saw in TOI that if there was a fixed rate earlier at the time of sanction and first disbursement and then the loan was changed to Floating rate then this is not applicable and thus Banks can still charge for pre payment of loan for such type of loans. How true is this.

    1. I dont think so .. any loans which is now on floating shall implement this

  112. Abhinav Gulechha says:

    Hi Manish

    Thanks. This is a welcome move for customers and put an end to the debate. However 2 points:

    a) From the text of circular, its abolished for only floating rate loans. Thus, those under fixed rate loans stay put as per bank’s prevailing T&Cs
    b) This is a circular by RBI to banks. What about loans taken from home finance companies like HDFC etc. – Has National Housing Bank come up with a similar very clear directive? Else I have noted that divergent practices followed by NBFCs will continue.

    Abhinav

    1. Yea .. those are two valid points and I am not sure the basis behind that !

  113. Ankur says:

    I availed home loan last month and also prepaid around 25% of the principal (made some frugal choices recently) just after 1st EMI. It has reduced my 180- months tenure to 99 months…I also chose to keep the EMI same to route a significant part of EMI towards prepayment. Now I hope to close this loan in 1 yr time!!!!!

    Thanks to Manish for his excellent articles on home loan which has increased my awareness rightly!

    1. Ashish says:

      Well done Ankur. A nice example of how pre-paying a loan in initial days can bring down the loan period amazingly.

    2. Good to hear that .. prepayment can really be a big boon and you have shown that with your personal example

      1. Ankur says:

        Thanks Manish. Would like to share with readers, for awareness, that HDFC has following clauses for prepayment:
        1. You can can make only 1 prepayment in a month (although you can provide multiple cheques from different accounts).
        2. The prepayment amount should be more than twice your EMI
        3. You need to provide 6 months bank statement as a proof towards source of prepayment
        4. There are absolutely no prepayment charges

        1. Thakns for this update . Where did you get this from ?

          1. Ankur says:

            When i visited HDFC for prepayment…these clauses were told to me by HDFC folks…

  114. Mukesh says:

    Although very late, this move has finally taken shape. I ended up paying INR 24000 to foreclose my ICICI home loan in 2009.

    1. Hmm… Yea now the future customers will atleast benefit from this

  115. Nagarajan says:

    Hi Manish …

    Good to hear 🙂

    I have a plan to prepay my ICICI home loan. But I want to know ICICI implemented this rule or not ?

    I am not receiving any communication regarding this from ICICI.

    Thanks and Regards
    Nagarajan Santhan

    1. Varun says:

      I have an ICICI Home loan i prepay almost on a monthly basis there is no charges.

      1. Prepayment on monthly basis to some extent is not an issue !

    2. Jayaraman says:

      ICICI and SBI were the first to implement this even before the circular was released.

    3. This should be implemented by ICICI for sure … just remind them about this incase they disagree !

      1. Roop5 says:

        ICICI have this rule implemented currently for all floating loans , even if they were fixed rate at the time of loan disbursement.
        for more details, pls go through last paragraph of prepayment charges on
        http://www.icicibank.com/Personal-Banking/loans/home-loan/service-charges.html

        1. Thanks for that update

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