Foreclosure charges on home loan
M.Sivakumar
(Querist) 07 August 2013
This query is : Resolved
I understand that as per RBI circular on June 2012, foreclosure charges on prepayment of home loan is abolished. But apparently there is some fine-print to it which I cannot fathom. Please clarify :
1. I have taken a home loan account with a bank as on 2004.
2. I topped up the above loan on Aug 2006.
3. The earlier loan taken on 2004 is closed and the a new loan was made effective as on Aug 2006.
4. On August 2013 I decided to foreclose the above loan and applied for a foreclosure statement.
5. The bank provided me a foreclosure statement which included pre-payment charges.
6. When I queried the bank on the pre-payment charges (which is abolished by RBI) they said it is valid and provided the following explanation : What I have taken is Home Loan Enhancement and not Home Loan. And hence the prepayment charges apply.
7. I dont understand the difference between Home Loan and Home Enhancement Loan - for all practical purposes both are same. The only thing I did is take an top-up on the original loan amount sanctioned. Can any of the expert clarify whether the stand taken by the bank is correct ? Or they are just escaping on fine-print ?
ajay sethi
(Expert) 08 August 2013
complain to banking ombudsman . no prepayment charges are leviable on home loan,. if you have take home improvement loan cross check wordings of circular issued by rbi .
c.p.s. ramachary
(Expert) 08 August 2013
I do agree with Mr Ajay Sethi.
Your query first of all is not clear. What do you mean by "topped up"? Have you availed enhancement? Why don't you be clear in your language. If it is enhancement of the existing loan, it cannot be called as fore closure or pre-closure. The word "fore closure" is different. It is bank's right to foreclose the mortgage. It must be "pre-closure" of loan. In your case you have not closed the loan account it is only restructured from a smaller loan to a bigger loan. The bank cannot collect any charges in the name of "pre-closure". You may address the bank to delete this charge from the loan account else threaten that you will approach approach Banking Ombudsman for remedy.
Rajendra K Goyal
(Expert) 08 August 2013
You should send a letter to the Bank and afterwards lodge a complaint to Banking Ombudsman and also write to RBI.
M.Sivakumar
(Querist) 08 August 2013
Thanks for the reply from all the eminent experts. Sorry Mr.C.P.S. Ramachary for not being clear. What I meant is enhancement only.
I had a talk with the bank people. Apparently they have two classification of home loans - one as pure home loan and another as Home enhancement, top-up loan etc. If the customer has taken enhancement it comes under the second category and the bank has stated that the fore-closure charges apply. I am not sure whether RBI has specifically stated that only "Pure Home Loans" will qualify for the benefit and the enhancement/top-up loans will not qualify. Experts can clarify.
The relevant URL is here :
http://www.online.citibank.co.in/soc/soc-pdfs/mortgages.pdf
On a related note - HFC's coming under NHB have made a finer distinction :
1. All home loans with variable/floating interest rate will qualify for the benefit (waiver of the preclosure charges)
2. Home loans with fixed interest rate will qualify only if it is closed with the own source.
Not sure whether even the above is correct as per RBI guidelines.
ajay sethi
(Expert) 08 August 2013
complain to ombudsman . also complain to RBI .
malipeddi jaggarao
(Expert) 12 August 2013
If your home loan is with fixed rate of interest, the bank can not charge fore-closure charges only if you close the loan account with your own funds. That means no take-over by another bank.
If you qualify from the above exception, bank can not charge foreclosure charges. But as the RBI circular is not clear about this situation, bank will take advantage and levy charges. In such cases, the remedy lies with filing a complaint against the bank with Ombudsman and RBI.
