No Prepayment Charge – How it will Benefit you?

For once National Housing Bank (NHB) has stolen a march over its parent RBI in passing a regulation that pre-payment penalty cannot be charged by housing finance companies in case of loans that are on a floating interest rate basis irrespective of the source of such repayment (even if it is by way of transfer of loan to another lender). Since 98% of the borrowers have taken home loans on floating rate basis, this will have a beneficial impact on all home loan consumers who have taken loans from Housing Finance Companies (like HDFC Ltd., LIC Housing Finance, DHFL, India Bulls Housing, PNB Housing Finance, Deustche Post Bank and GIC Housing Finance etc.)

This will be especially useful for people who have taken these loans from these entities before 2010 and are paying interest rates as high as 12-14% even though new customers are given 10.75% – 11.25 % by the same lenders.

However before you begin celebrating, it would be useful to keep the following things in mind:

Firstly this covers only housing finance companies (HDFC, LIC Housing Finance, Dewan Housing and GIC Housing finance) and leaves out banks though some banks like Axis and State Bank of India have already voluntarily provided nil prepayment charges.
Unlike the banking ombudsman there is no official grievance redressal machinery that will ensure that the regulation will actually be followed in practice. Although the circular talks of penal consequences if the regulation is not followed and the machinery to enforce the regulation has hopefully been put in place by NHB.

The current redressal mechanism (see box) is time consuming and not yet tested and proven and hence it will require a pretty tenacious customer to make sure he gets the benefit of this regulation.

The best bet for alert customers is to approach your existing lender to convert your loan to the rate that they charge for new customers. So far the HFC’s were charging a fee of around 1-2% for making this change in the floating rate but with the new regulation it is likely that this fee may not be charged at all and hence the customer will benefit without going through the process of shifting his loan to another lender.

All in all it is a good regulation and hopefully is a signal that RBI will also come out with a similar regulation. It will go a long way in ensuring that at least alert customers will not be discriminated against as compared to new home loan customers.

Current Grievance Redressal mechanism

Currently, the only redressal that consumers have if the HFC refuses to follow the regulation is to first complain on the relevant HFC’s site and if no satisfactory solution is found within a reasonable period then NHB has the following redressal mechanism as put up on their site :

You can file a grievance with:

Shri R. S. Garg
General Manager
National Housing Bank
Core 5A, India Habitat Centre
Lodhi Road
New Delhi 110 003
Telephone 24649043
E-Mail Id –  rsgarg@nhb.org.in

After exhausting all the above machinery / channels, if the client/ customer is not satisfied, he/she may write to Chairman & Managing Director of NHB and even after this, if he/she is not satisfied, he/she is free to take recourse to the following:

Director (Public Grievances), Department of Administrative Reforms and Public Grievances, Government of India, Sardar Patel Bhawan, Parliament Street, New Delhi – 110001.

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