MORTGAGE giant HDFC has made it expensive for home borrowers choosing to switch over to another bank.
The institution has started charging borrowers up to 3% of the outstanding loan if they decide to prepay their loans by borrowing from another lender.
Direct selling agents in the home loan market believe the move is aimed at discouraging HDFCâ€™s existing borrowers from switching over to State Bank of India (SBI), which has stirred the market with a special scheme that offers home loans at 8% for the first year. Though the SBI loan is loaded with front-end charges like mortgage registration, the 8% interest, which is significantly lower than other offers, has sparked off a slew of enquiries among new and existing borrowers.
Indeed, the special scheme has triggered a battle for market share between HDFC and SBI. Recently, HDFC chairman Deepak Parekh had described the SBI scheme as a â€œgimmickâ€ in a media interview.
HDFC officials, however, played down the development. â€œOur prepayment charges have always ranged between 0% and 3%, depending on how long the borrower has been with us, where the funding is coming from and what is the interest rate on the loan being prepaid,â€ said HDFC deputy managing director Renu Karnad. She pointed out that this was similar to the condition that banks lending to HDFC insist on. â€œIn some cases the lenders ask for the difference between the contracted loan rate and market rate,â€ she said.
Since last year, HDFC is charging around 2% if a borrower prepays the loan within three years of disbursement.
HDFC has, however, kept part-prepayment up to 25% of a loan amount exempt from such charges.
Although the HDFC loan document does not mention the pre-payment charges, the institution, like most other lenders, has been charging around 2% for loans that are prepaid by obtaining refinance from other lenders.
An ICICI Bank spokesperson said the bank charges 2% for prepayment irrespective of whether it is refinanced or foreclosed by the borrower. Together with service tax, the prepayment cost goes up to 2.25%.
HDFC officials said all attempts are made to ensure that customers stay back. If the institution comes out with a scheme offering lower rates only for new customers, all floating rate borrowers who are paying higher rates are allowed to switch to the better rates by paying a 0.5% charge.
However, the new rate offered by SBI is not offered to the bankâ€™s existing borrowers. Under the special scheme, the interest rate applicable from the second year is in line with market rates. If the borrower is eligible for the special scheme formulated by the Indian Banksâ€™ Association, the rates for that scheme will apply.
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