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No Prepayment or Foreclosure Charges on Loan Against Property for Individuals - RBI

Last Updated 24th Jun 2017

Loan Against Property

You can now prepay loan against property (LAP) without any penalty or charges in case your loan meets the following conditions:

  • Your loan has been sanctioned at a floating rate of interest and not a fixed rate. Almost all loans against property are on floating rates and it is highly unlikely that yours is at a fixed rate
  • The loan is sanctioned in the name of one or more individual borrowers and not corporate entities
  • Neither the borrower nor the co-borrower is a corporate entity (ltd. or pvt. ltd. company) or a firm (partnership or AOP)
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RBI Circular on Prepayment Charges

For loans from banks and NBFC's, refer to RBI circulars RBI/2013-14/ 582/ DBOD. Dir.BC.No. 110 /13.03.00/2013-14 dated May 7, 2014 and RBI/2014-15/121/ DNBS(PD).CC.No.399/03.10.42 /2014-15 dated July 14, 2014 for more details.

NHB Circular on Foreclosure Charges

For loans from Housing Finance Companies, refer to NHB circulars NHB(ND)-DRS-Policy-Circular-63-14-15 dated Aug 14, 2014 and NHB-ND-DRS-Policy-Circular-No-66-2014-15 dated Sep 03, 2014 for more details.

The National Housing Bank (NHB) has clarified that its circular dated August 2014 regarding withdrawal of prepayment charges (on both part prepayment and full foreclosure) is applicable only on floating rate loans sanctioned to individuals.

Loans where a company or a form is an applicant or a co-applicant are outside the purview of the said circular.

The NHB Circular of 14th August had extended RBI's ban on prepayment charges applicable on floating rate loans to loans granted by housing finance companies (HFC's) governed by the NHB. RBI had already banned penalty on partial or full prepayment of all floating rate loans to individuals sanctioned by banks and NBFC's. NHB's move is essentially aimed at aligning the regulations for all classes of lenders to one common basis.

In it's circular dated 3rd September, 2014, NHB has clarified that the August 14, 2014 circular is applicable to all floating rate loans sanctioned before or after 14th August but being repaid on or after the said date. Thus, the circular would override the contracted terms in the sanction letter and loan agreement executed before 14th August 2014 also.

Further, NHB has clarified that ban on prepayment charges would not be applicable for loans with companies or non individual as either primary borrower or co-borrower. In practice, very large volume and value of loan against property (LAP) are sanctioned with individuals as applicants and their business entities (pvt. ltd. companies and partnerships or firms) as co-borrowers. The NHB clarification means that such loans will continue to attract prepayment charges as contracted between the borrower and lender.

For more details and case specific guidance, contact MyLoanCare at 0124 460 3660 or care@myloancare.in.

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Loan Against Property News - Jun 2017
  • 2017-05-30 : DDA’s housing scheme with 13,000 flats on offer to be launch in mid June
    The Delhi Development Authority (DDA) is set to announce the launch of its housing scheme in mid June, 2017. The real estate agency is offering around 13,000 flats under the scheme, of which 350 are two-room Middle Income Group (MIG) flats, while the rest are either one-bedroom Lower Income Group Flats (LIG) flats or Janta flats. The housing authority has also tied up with some of the leading banks including Axis Bank, Yes Bank, SBI, Kotak Mahindra, HDFC and ICICI Bank for initiating sale of application forms and scheme related transactions
  • 2017-05-23 : Emaar India plans to complete all its housing projects by raising Rs. 1,000 crore
    Emaar India, a leading real estate company is planning to raise capital of worth Rs. 1,000 crore. The purpose of raising the capital by the company is to meet construction expenses. It targets to complete its ongoing 50 projects over the next two years.
  • 2017-05-17 : Axis Bank reduces interest rates for loan against property to 9.75 per cent
    Axis Bank has announced to reduce its loan against property interest rates. The rates are reduced to 9.75 per cent from 11 per cent earlier. The new loan against property rates is applicable only for logins till 31st May, 2017.
  • 2017-05-05 : DLF ties up with SBI for housing projects in Gurugram
    Realty major DLF and nationalized bank State bank of India has tied up to provide preferred treatment to their customers in loans and pricing for housing projects in Gurugram. They have signed a memorandum of understanding (MoU) to collaborate on providing quality services to their premium customers.
  • 2017-04-17 : Indiabulls plans to restructure its real estate business
    According to sources, Indiabulls Real Estate’s board is planning to restructure their real estate business by de- merging their commercial and residential segments into separate companies. The restructuring would help the company concentrate on its key business segments individually and improve its competitive advantage in the real estate sector in the country.
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