Unfair Penalty levied on the Home Loan Borrowers
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Home Loan rates have been increasing frequently. Unfair penalty has been levied on the Home Loan Borrowers. Bankers’ contention that the charge is being levied only if the borrower closes his loan by transferring his account to another lender is perverse. Bankers know that most of their borrowers do business in a competitive market. It is also an issue that the home loan market now has no viable products for borrowers with limited wherewithal to absorb swings in EMIs. Lenders have virtually done away with fixed interest loans by pricing them at unattractive rates or introducing ‘reset’ clauses that protect their interests.
Existing customers, in particular, have the onerous task of not only anticipating correctly the interest rate movements but also budgeting for swings in their Equated Monthly Installments (EMIs). Higher rates may not be an issue in small-ticket loans, but they certainly are for home-loan takers, whose EMIs often form up to half their monthly pay-cheques. It is in this backdrop that the Reserve Bank of India, in a recent conference on banking ombudsmen, has frowned upon the banks’ practice of levying penalty on borrowers pre-paying their floating-rate home loans.
Interest rates have been raised by 2% points compared to the previous year. The home loan borrowers have two of the options to conclude this unfair penalty issues. Either the home loan borrowers have to stop servicing the loan and lose their mortgaged property or pre-pay it. If they choose the latter one, they end up promptly slapped with a penalty of up to 2-4 per cent of the loan amount.
Source: Business Line
