NHB moves bars loan prepayment charges

In what could be termed as a Diwali gift from the National Housing Bank to home loan borrowers, housing finance companies would no longer be allowed to charge prepayment penalty any more. The bank has also put an end to differential rates for old and new customers according to CNBC-TV18's Gopika Gopakumar.

The National Housing Bank (NHB), which functions as a regulator for housing finance companies, has come out with guidelines under which companies are barred from charging pre-payment penalty on either fixed or floating rate loans when borrowers prepaid loans. This would allow more freedom to borrowers for shifting from one housing finance companies to another, the report by CNBC-TV18 added.

Borrowers would now have wider choice so as to allow them the best fit for the interest rate for their home loan. Analysts say this could create much volatility in the housing loan market with customers shifting from one housing finance company to another.

According to the chairman of the NHB, the matter had been looked into in details and it was expected that major players in housing finance would not be affected.

In fact, NHB believed the companies would be able to withstand the impact of any sort of asset liability mismatches, which could be expected with the customers switching from one housing finance company to another.

Though some interest risk could be expected, it could be priced in or be absorbed in the pricing of home loan rates, going forward. Housing finance companies therefore believed that the prepayment penalty could be priced in to the home loan rates, going forward.