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NHB to soon abolish pre-payment penalty on home loans

NHB, which regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and Dewan Housing Finance, said that it would soon issue a circular for doing away with pre-payment charges levied by housing finance companies

New Delhi: In a big relief to home loan borrowers from housing finance companies, housing regulator National Housing Bank (NHB) on Monday said it will soon come out with a directive to abolish penalty on pre-payment of floating loans, reports PTI.

“We will soon issue a circular for doing away with pre-payment charges levied by housing finance companies,” NHB chairman and managing director RV Verma said after announcing 2010-11 financial numbers here.

National Housing Bank (NHB) regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and Dewan Housing Finance.

The housing finance companies should not levy any pre-payment charges on floating loans, he said.

If pre-closure of housing loans by the borrowers out of their own sources, then there should not be any penalty, he added.

In a release issued in October 2010, the regulator had said, “The issue of levying pre-payment penalty or pre-payment charges by housing finance companies on pre-closure of housing loans by the borrowers out of their own sources has been considered by the National Housing Bank and it has been decided that housing finance companies should not charge prepayment levy or penalty in such cases.”

Meanwhile, the banking sector regulator Reserve Bank of India (RBI) has also mooted the idea of doing away with the pre-payment charges levied by banks on floating home loan.

At the same time, NHB has tightened norms for housing finance companies (HFCs) with regard to provisioning.

It has raised the provisioning requirement for doubtful assets of up to 100%. At the same time, it directed HFCs, to set aside 0.4% of the total outstanding ‘standard’ loans as a buffer.

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