No penalty on pre-payment of SBI home loans- Business News
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No penalty on pre-payment of SBI home loans

At present, some banks are charging up to 2 per cent as pre-payment penalty on the loan outstanding, if a borrower settles the full payment before maturity by switching over to another lender.

 PTI   
  • New Delhi,  November 25, 2011  
  • |  
  • UPDATED   12:49 IST

Country's largest lender State Bank of India (SBI ) has decided to abolish pre-payment charges on home loans , giving some succour to borrowers who want to foreclose their accounts.

"We have decided to do away with the pre-payment charges on all kinds of housing loans with immediate effect," a senior official of the bank said.

The bank has been charging pre-payment penalties only on housing loans with floating interest rates taken before May 2011, the official said. It has been charging about 2 per cent of the outstanding amount as penalty if borrowers opted to foreclose their loans.

The decision from the largest lender will prompt other lenders to follow the suit.

The total outstanding home loan of SBI rose to Rs 92,383 crore at the end of September against Rs 86,769 crore in March 2011.

At present, some banks are charging up to 2 per cent as pre-payment penalty on the loan outstanding, if a borrower settles the full payment before maturity by switching over to another lender.

No pre-payment fine is charged if borrowers pay using their own funds.

It may be noted that the Reserve Bank has indicated that it would scrap prepayment penalties charged by banks.