The National Housing bank of India (NHAI), the housing finance companies’ (HFCs’) regulator, is considering allowing lenders to levy penalty on home loan borrowers who transfer the outstanding loan amount to another lender within two years of taking a home loan. If it happens, it will be a dampener for the new home loan borrowers as they won’t be able to make the most out of the interest rate cuts.
Sriram Kalyanaraman, Chairman of NHB, was concerned as though low interest rates being offered by banks and HFCs are good for customers but as it is the same set of customers they are focused on, there could be a bubble-like situation.
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Home loan balance transfer is a facility under which a borrower can transfer their outstanding home loan amount to another lender if the new lender is giving home loan at a lower interest rate.
In 2011, NHB, in line with the Reserve Bank of India, waived off pre-payment penalty on home loan balance transfer in case of floating-rate interest loan. Thus, making it easy for borrowers to transfer the loan to another lender by prepaying the existing lender. In case of fixed-rate interest loan, however, the penalty still exists.
Recently, after the 50 basis points (100 basis points is equal to 1%) rate cut by the RBI, HDFC (Housing Development Finance Corporation) reduced its home loan interest rates by 25bps to 9.65%. India Bulls Housing Finance Company too recently reduced the home loan rate by 10 basis points to 9.55% for a limited period as a festive offer till November 15.