Relief for Home Loan Borrowers: NHB Orders Interest on Advance EMI Payments

In a significant move set to benefit home loan borrowers across India, the National Housing Bank (NHB) has introduced a new directive requiring housing finance companies (HFCs) to pay interest on advance EMI payments if they are not adjusted immediately. This change aims to bring greater transparency and fairness to the housing finance system while reducing the undue interest burden on customers.

Advance EMI Payments to Earn Interest

Under the new guidelines, if a home loan borrower makes an EMI payment in advance and that payment is not promptly adjusted towards their loan but instead remains parked in a suspense or sundry account, the housing finance company must now pay interest on that amount. Significantly, the interest paid by the HFC must match the same rate applied to the borrower’s home loan.

This change is expected to bring relief to lakhs of customers who often pay EMIs in advance either to maintain a good repayment history or to avoid potential defaults.

NHB Focuses on Borrower Protection

According to an ET report citing official sources, this initiative by the NHB is designed to promote responsible lending practices and shield borrowers—especially from the economically weaker sections (EWS) and lower-income groups (LIG)—from unjustified financial burdens.

Some housing finance companies had a pattern of collecting one or two EMIs in advance from such borrowers to strengthen their financial books. However, the NHB has now made it clear: either these companies should disburse smaller loan amounts or be prepared to pay interest on advance EMIs.

The measure, NHB states, will reduce the financial load on customers and increase transparency in the lending process.

Aligning with RBI’s Transparent Lending Policies

This step by NHB aligns closely with the Reserve Bank of India’s (RBI) ongoing efforts to enforce fair and transparent lending policies.

In April 2024, the RBI had issued a guideline that interest should be charged only from the actual loan disbursement date—not the loan agreement date. This decision came after it was discovered that many lenders were charging interest for the full month, even if the loan was sanctioned in the middle of the month.

NHB’s latest move reinforces these standards and ensures that borrowers are not subjected to exploitative practices by lenders.

Tighter Regulatory Oversight on HFCs

The NHB, which serves as the regulatory body overseeing housing finance companies, has been intensifying its scrutiny of HFC operations.

In December 2024, the NHB mandated that all HFCs submit monthly reports detailing Non-Performing Assets (NPAs) on the first of each month. This was in response to certain lenders delaying the recording of monthly collections—thus distorting their financial reporting.

Now, with the latest directive on interest payments for advance EMIs, the NHB is taking another bold step towards ensuring fair play and borrower-centric practices in the housing finance sector.

Key Takeaways:

• Borrowers will now earn interest on advance EMI payments not immediately adjusted.

• Interest rate to be the same as the home loan interest rate.

• Move protects borrowers from unnecessary financial burdens.

• NHB is cracking down on opaque practices by housing finance companies.

• Aligns with RBI’s policy of charging interest only from the actual loan disbursement date.