NHB bans HFCs from charging pre-payment penalty on housing loans ::Angel Broking,

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NHB bans HFCs from charging pre-payment penalty on housing
loans
Home finance regulator, National Housing Bank (NHB) has banned Housing
Finance Companies (HFCs) from charging pre-payment penalty on home
loans. For floating rate loans, pre-payment charges will totally be eliminated;
while in case of fixed rate loans, no pre-payment penalty will be charged if the
loan is pre-closed by the borrower out of own sources. Also, NHB has asked
HFCs to charge same interest rate to all borrowers, irrespective of when the
loan was taken.
While the total income from pre-payment penalties was not available for
HDFC and LIC Housing Finance, for Dewan Housing Income from
pre-payment charges were `9cr for FY2011 (~2% of total operating income of
`445cr). The closure of pre-payment charges is not expected to significantly
hurt the profitability of HFCs; however, it could lead to origination of asset
liability mismatches from unanticipated pre-payments for these companies.
Moreover, total elimination of pre-payment charges on floating rate loans is
expected to lead to borrowers preferring floating rate loans over fixed rate
loans, consequently leading to slower response for teaser loans, which
generally lead to faster portfolio growth for HFCs. On an overall basis, we do
not expect any material impact of these regulations on HFCs.