Shifting home loans may be allowable to curb rate hikes
By Joseph Samson
May 13, 2010
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There may be some changes coming up in prepayment rules in order to enable borrowers to shift home loans to cheap lenders in case their existing lender hikes rates soon after the borrower has taken the loan.

The government wishes that banks should come up with a two month window only for the new borrowers so that they can shift to other banks without having to pay a prepayment penalty if the current lender has raised rates immediately after the loan has been disbursed.

It is likely that the Finance Ministry and RBI would discuss on the matter and seek the changes.

"If a bank hike interest rates within a month of the loan taken by a customer, the borrower should also be allowed to look for cheaper options without paying any charges," said a senior finance ministry official. He also said that a prepayment penalty charged in such cases is like a double penalty.

"The average maturity of deposits a bank holds is for a period of one and half years. If a loan is prepaid within two months, it will not put any strain," the official said.

RBI is most probably going to have a talk on this with the Indian Banking Association (IBA). "We're open to discussion. One should understand that less than 5% borrowers switch loans," an IBA official said.


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