The Housing Development and Finance Corporation, the mortgage and home loan giant, leading private bank HDFC has decided to increase the interests its customers pay for switching to another financier.
The lender has started charging three per cent on the outstanding amount if they pre-pay their loan by borrowing from another lender.
Those in the market widely believe that the move is aimed at discouraging HDFC's existing borrowers from switching over to the State Bank of India (SBI), which has created some waves with a scheme that offers home loans at eight per cent for the first year.
The HDFC chairman, Deepak Parekh had recently termed SBI's scheme as a "gimmick" and expressed confidence that it would not affect HDFC's business or customer base. However, the fact is that HDFC is certainly worried about the SBI scheme's success.
Though the SBI loan is loaded with front-end charges, like mortgage registration, the significantly lower interest rate has sparked off a slew of enquiries among new and existing borrowers.
The new rate offered by SBI is not offered to the bank's existing borrowers. Under the special scheme, the interest rate applicable from the second year is in line with market rates.
Officials in HDFC played down the development. ''Our prepayment charges have always ranged between zero and three per cent, depending on how long the borrower has been with us, where the funding is coming from and what is the interest rate on the loan being prepaid,'' HDFC deputy managing director Renu Karnad told The Economic Times.
Since last year, HDFC is charging around two per cent if a borrower prepays the loan within three years of disbursement by obtaining refinance from other lenders. HDFC has, however, kept part-prepayment up to 25 per cent of a loan amount exempt from such charges.
Although the HDFC loan document does not specifically mention the pre-payment charges, the institution, like most other lenders, has been charging for loans that are prepaid.