New Delhi: The Delhi Consumer Commission has ruled that banks cannot change interest rates on home loans without obtaining borrowers’ consent. He also called the automatic change in interest rates an “unfair trading practice”. Judge Sangita Dhingra of the commission noted that banks were obliged to notify borrowers and seek their consent whenever home loan interest rates were changed under the floating interest rate scheme. 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 the event of a variable interest rate, the interest on the loan continued to fluctuate in accordance to the approval of the Reserve Bank of India (RBI).
Further, by signing a loan agreement, a borrower would agree to these changes in interest as well as changes in the repayment term of the loan. However, the commission argued that an option must be given to the borrower before changing the floating interest rate.
What are the different interest rate options offered by banks to borrowers?
Usually, banks offer one of the following loan options: variable rate home loans and fixed rate home loans.
For a fixed rate loan, the interest rate is fixed either for the entire term of the loan or for a certain part of the term of the loan. In the case of a pure fixed loan, the EMI that a borrower owes the bank remains constant. However, if a bank offers a loan that is only fixed for a certain period of the loan term, RBI advises that borrowers should try to get information from the bank if rates can be raised after the period (clause reset). Borrowers can also try to negotiate a lock-in which should include the rate you initially agreed and the duration of the lock-in, the central bank explains. The EMI of a variable rate loan changes with changes in market interest rates. If market rates go up, your refund goes up. When rates go down, your premiums go down too.