RBI Cancels Prepayment Fees on Floating Home Loans

Home Loans: The Reserve Bank of India (RBI) has announced a major relief to borrowers. The RBI has announced that no prepayment charges will be levied on floating rate loans from January 1, 2026. This means that those who want to repay the loan before the maturity date will no longer have to pay additional charges.

Which loans will this law apply to?

This new law will apply only to floating rate loans sanctioned or renewed on or after January 1, 2026. The RBI has issued clear instructions in this regard to all banks and non-banking financial institutions. No prepayment charge will be levied on floating rate loans (single or multi-name loans) to individuals other than for business purposes.

Commercial banks have also been instructed not to levy prepayment charge on floating rate loans to individual businesses or micro and small enterprises. However, this instruction is not applicable to certain banks such as small finance banks, regional rural banks and local area banks. Institutions like Small Finance Banks, Regional Rural Banks, Cooperative Banks, NBFC-MLs etc. will not be allowed to charge prepayment charges on loans up to Rs 50 lakh.

Who will benefit from this?

This decision of the RBI will directly benefit the home loan borrowers and those who have taken floating rate loans. Currently, most of the home loans are on floating rate. Therefore, this is a big relief for crores of customers. This decision will also benefit the borrowers from the MSE sector. This law will be applicable whether the loan is repaid partially or fully. Where the money comes from is also not an issue here. Also, there will be no minimum lock-in period.

The RBI has taken this decision after noting that different approaches taken by different banks and NBFCs in levying prepayment charges were leading to customer complaints and disputes. In the case of fixed term loans, if any financial institution levies a prepayment charge, it should be based on the amount prepaid, the RBI said.

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