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.
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