Pre-payment penalty continues on fixed-rate home loans

Published: January 23, 2019 12:09:29 AM

This rule is applicable to existing home loans. However, this rule is applicable only to floating rate of interest loans. The pre-payment penalty on loans taken on fixed-rate continues to hold.

Pre-payment penalty continues on fixed rate home loans

By Chaitali Dutta

I had taken a loan from an NBFC in 2006 where there was a 2% penalty clause on pre-payment. Now that the rule has changed after 2014, will it still charge me the penalty if I pre-pay?
– K Radhakrishnan
The prepayment penalty/ foreclosure charges was discontinued in 2012 as per RBI circular RBI/2011-12/589 DBOD. No. Dir. BC.107/13.03.00/2011-12. This rule is applicable to existing home loans. However, this rule is applicable only to floating rate of interest loans. The pre-payment penalty on loans taken on fixed-rate continues to hold.

I took a car loan two years ago at 8.5%. Like a home loan, will the bank increase the interest rate for my car loan also?
—Navansh Dhingra
It will depend on whether the loan was extended on a floating rate or a fixed rate. Please check your sanction letter for details. If on a floating rate basis, then on an increase or decrease in MCLR for that tenor, your loan interest rate will move accordingly. If on a fixed rate basis, the rate does not change throughout the tenor.

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Can I take a joint loan with my brother to renovate our family house?
—Parth Nair
Yes, you may, but first, the ancestral property has to be transferred to you and your siblings. Second, all siblings/ register-ed owners of the property have to be joint applicants to the loan.

Is it possible to pay off a home loan within one year?
—Akshat Mohan
Yes, it is very much possible, if you have the surplus to pay the loan off.

I had taken an education loan for my son’s education. Now I want to take a similar loan for my daughter’s higher education. Will the bank lend as I have retired from service last month?
—Raghav Kumar
Your daughter may secure an education loan with a guarantor substituting the parental co-obligation. Depending on the course she is selected for and the loan amount, the guarantor may have to furnish tangible collateral security.

Do I have to get a credit score to take a loan to purchase a car?
—Bhupesh Singh
Yes, the credit scores are checked by banks while evaluating a loan application. Having a high score will get you a loan with better terms and lower interest rate.

The writer is founder, AZUKE Personal Finance Advisory. Website: azukefinance.com
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