Tuesday, December 7, 2010

Prepayment Charges

Since its inception, MHFC has had a NIL prepayment charge policy. This is because we encourage our customers to be debt free (esp on their homes) as soon as possible. Also, since funding for banks and HFCs is mostly on a floating basis (and can be likewise repaid without any charge), there is very little justification for a lender to charge a fee if the customer decided to prepay a loan. In any case, with growth rates in the home loan business being 30% p.a approx, funds paid back can always be deployed again fairly easily. The RBI is also looking at this issue seriously as it has received several customer complaints on high prepayment charges (we believe the normal market range is a flat fee of anywhere between 1% and 5%).

In this context, today's letter to the Ask Mint Money column is quite shocking - a customer has written in saying that he has a home loan of 8 lakhs and wishes to prepay 4 lakhs. But the HFC is asking him to pay a 10% service charge and 2% in admin charges. This seems incredibly high - and at face value works out to a 48,000 Rs prepayment fee !!!

Link to Mint Money article

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