RBI stops pre closure charges on home loans

The RBI has issued a notification preventing the charging of penalty on the pre-closure of home loans with floating interest. The banks were charging around 3% penalty on the outstanding loan amount for closure of the loan before the tenure. This move by RBI enables the customer to switch to another bank offering a lower interest rate. The notification comes with immediate effect. Removal of such charges will lead to a reduction in the discrimination between existing and new borrowers and the competition among banks will result in finer pricing of home loans with the floating rate