The Reserve Bank of India has directed banks not to levy foreclosure charges or pre-payment penalties on floating-rate term loans sanctioned to individual borrowers.
This can be particularly useful for home-loan borrowers who receive a bonus, maturity proceeds or other surplus funds and want to reduce their outstanding loan.
For example, if you have a ?20 lakh outstanding floating-rate home loan and decide to prepay ?5 lakh, an eligible loan should not attract a foreclosure or prepayment penalty merely for making that repayment.
However, borrowers should check whether their loan is floating or fixed rate and review their sanction letter, as terms can differ for other loan structures.
Who benefits: Individual borrowers with eligible floating-rate term loans.
Action: Before paying any foreclosure charge, check your loan agreement and RBI rules.
