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After RBI, National Housing Board (NHB) has also announced that it will soon issue a notification for abolishing charges on prepayment of floating loans. NHB regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and many more.

As per NHB, if pre-closure of housing loans by the borrowers is out of their own sources, then there should not be any penalty. Some of the home loan providers like HDFC and Axis Bank don't charge any penalty for prepayment at present as well. This notification will bring some consistency among housing loan providers.

However, we believe that both RBI and NHB should go one step further so that even if prepayment is by refinancing home loan from another source, there should not be any penalty. This will increase the competition among the housing finance companies and bring interest rates down. This will be most beneficial for the customers as currently the companies offer lower rate of interest to new customers than existing customers. This creates disparity but the existing customer cannot go to another housing loan provider because of the penalty.

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