When it comes to regulating the country’s lending market, the Reserve Bank of India is responsible for framing crucial policies and implementing them. Therefore, every financial institution like home loan operating within the boundary of this country are expected to abide by these guidelines. Additionally, borrowers should also be aware of the RBI policies while opting for a loan or making an investment.
The following sections will discuss some of the essential guidelines that consumers availing of a home loan should abide by. Nevertheless, these guidelines are subject to modifications from time to time at the central bank’s discretion.
Regulations to remember for availing of a home loan
When applying for a housing loan, it is crucial to have a clear knowledge of the regulations that govern a home loan process. Here are some of the major housing loan regulations to remember and follow:
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General rules for lenders and consumers
According to RBI policies, lenders will approve the home loans of those applicants who can meet all the essential home loan eligibility criteria. Moreover, borrowers should come with a high credit score of 750+ and should be able to prove their repayment capacity to the lenders.
Lenders will also have to ensure that borrowers submit a list of documents for a home loan along with their loan application. The documents needed for home loan approval includes KYC papers, property registration papers and others.
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Rules on prepayment charges
Housing loans are usually high quantum, and it takes anywhere between 10 years o 30 years to repay that amount. Hence, the total interest payable on this financial product is naturally quite high. Notably, individuals can lower their interest payment on housing credits by choosing to prepay this loan amount before the tenor. This can be done either entirely or partially.
Previously, lending institutions used to place a prepayment charge of 2% to 5%, irrespective of a housing loan. However, the latest RBI rules on home loans show that lenders cannot levy any prepayment charges for loans with floating interest rates. Contrarily, these prepayment charges are still applicable on housing credits with a fixed interest rate method.
Home loan prepayment can effectively reduce the total loan burden, making it easy for individuals to repay their debt, eliminating the chances of a default.
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Rules on LTV ratio
The amendments made by the RBI in 2015 regarding the loan-to-value ratio has affected the maximum amount one can avail as a home loan. According to this amendment, borrowers can get a housing loan with 90% of the value of their property only if that property has a market value of less than Rs.30 lakh. However, if this property price goes beyond Rs.30 lakh but is within Rs.75 lakh, then one will receive a maximum loan-to-value ratio of 80%. In case one decides to buy a property of more than Rs.75 lakh, the LTV will stand at 75%.
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Rules on home loan balance transfer
With a loan balance transfer. Customers can shift their housing loans from their existing financiers to new ones. Offering lower home loan interest rates and better terms. Borrowers need to foreclose their current loans and opt for a new loan on the unpaid principal loan amount.
However, borrowers should know when to apply for home loan transfer so that they can save on their overall interest payable amount.
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Additional guideline
The Reserve Bank of India has also recommended. That home loan borrowers should opt for home insurance to safeguard the financial future of their families. This can protect the families in case the borrower passes away before completely repaying the loan amount. Although this rule is not mandatorily enforced. It can prevent the dependents from losing the home even if the borrowed amount remains unpaid after any unfortunate incident.
These rules are meant for every traditional bank and housing finance company that operate in the country.
Apart from this, leading financiers of this country also extend pre-approved offers. To make the loan application process a hassle-free one. These offers are applicable on financial products like loan against property, home loans, etc. Individuals can now check their pre-approved offers by submitting their contact information.
Borrowers looking to avail of home loans should stay updated with any changes made in the policies by the RBI. This will help them to get better deals and loan terms.
