New Delhi: The Delhi consumer commission has ruled that banks cannot change home loan interest rates without taking the consent of borrowers. It also called the automatic change in interest rates an “unfair trade practice”. Justice Sangita Dhingra of the commission noted that banks were obliged to inform borrowers and seek their consent whenever home loan interest rates were being changed under the floating rate of interest plan. Recalling a 2015 judgment of the Supreme Court, as well as a 2019 judgment of the national consumer forum, the commission did not dispute that in cases of floating rate of interest, the interest on loan kept fluctuating as per the approval of the Reserve Bank of India (RBI).
Also, by inking a loan agreement a borrower would agree to these interest alterations as well as changes in the tenure of the loan repayment. However, the commission maintained that an opportunity must be afforded to the borrower before changing the floating rate of interest.
What are the different interest rate options offered by banks to borrowers?
Usually, banks offer either of the following loan options –Floating Rate Home Loans and Fixed Rate Home Loans.
For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or for a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI that a borrower is due to the bank remains constant. However, if a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, RBI says that borrowers should try to elicit information from the bank whether the rates may be raised after the period (reset clause). Borrowers may also try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts, says the central bank. The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall.