If your bank does not cut rates on your home loan then you can opt for another bank with the RBI asking banks not to levy any penalty on pre-payment of loans taken on floating rate.
Major banks including State Bank of India, ICICI Bank, Axis Bank have already abolished such pre payment penalty.
“Though many banks have, in the recent past, voluntarily abolished pre-payment penalties on floating rate home loans, there is a need for ensuring uniformity across the banking system in this regard,” said Subbarao. “Accordingly, it is proposed not to permit banks to levy foreclosure charges or pre-payment penalties on home loans on a floating interest rate basis.”
Some banks were charging pre-payment penalty of 1-2 % of outstanding loans.
The removal of foreclosure charges or prepayment penalty on home loans will reduce the discrimination between existing and new borrowers.
Last year, a consensus was reached to the effect that banks should not impose pre-payment charges on loans with a floating rate of interest. Following this housing finance regulator National Housing Bank directed housing finance companies to desist from imposing pre-payment penalties.