Updated: January, 2018 RBI is the Central Bank of the country and frames the policies for lending and deposits in India apart from carrying out other important functions. Thus all policies related to loans are also laid down by the RBI and the banks have to function within the framework set by the RBI guidelines. These guidelines cover various aspects of lending and borrowing and are amended from time to time keeping in view various macro and micro economic parameters. Here we focus on few guidelines that define the home loan segment.RBI Guidelines for Home Loan:From a borrower’s perspective taking a loan involves meeting the eligibility criteria, submitting the required documents and then adhering to the repayment rules as laid down by the lender in the loan agreement. Guidelines Related to Prepayment Charges:
As we know home loans come with a huge interest cost as they are usually big ticket and are taken for durations ranging from 10 to 25 years. This cost can be reduced if the borrower is able to prepay a loan fully or partially thus reducing the principal amount or the tenure. Prior to the RBI’s changed guidelines banks and NBFCs charged a fee ranging from 2% to 5% of the unpaid principal amount as prepayment charges if the borrower chose to make a partial/full prepayment. Now as per theRBI guidelineslenders are not allowed to charge anything for a prepayment on floating interest loans. This decision impacts home loan balance transfer process too.
Home loan balance transfer is an option that allows you to switch from an expensive loan that you availed some years back to a lower interest loan. At Switchme.in we have helped many customers save huge amounts by helping them switch to less expensive loans. You can read about thehome loan balance transfer process in detail on our blog on the same topic. The balance transfer option essentially involves foreclosing the existing loan and taking a new loan for the unpaid principal amount. With the charges on foreclosure of floating rate loans waived borrowers can switch to a new loan without having to bear the burden of these charges. However, banks may charge pre-payment penalty on fixed rate loans varying from 1% to 3%.
Guidelines Related to LTV Ratio:There was a change announced by RBI in October 2015 that impacts the amount of loan available to the borrower. The RBI, as per the changed policy, allows a borrower to avail a loan up to 90% of the property value if the value of the property in question is less than or equal to Rs. 30 lakhs. For loans that are above Rs. 30 lakhs and up to Rs. 75 lakhs LTV Ratio is 80%. Loans above Rs. 75 lakhs have a LTV ratio of 75%. We have covered this change announced by the RBI in the LTV ratio in detail in an earlier post.Guidelines Related to Home Loan Insurance:
Owning a house offers a great sense of security to the house owners. However, if the house is bought with the help of a loan and God forbid the primary bread winner and the person who pays the EMIs passes away this security could be snatched from the dependents. Thus it is advisable for the borrower to get home loan insurance as a safety net against such an eventuality or other unfortunate events like loss of income or disability etc. Even though getting an insurance cover is in the best interest of the borrower, whether the borrower wants it or not is his/her choice. The type insurance policy he/she chooses and from where he/she intends to buy it also the borrower’s prerogative.
Sometimes banks may insist that the borrower take the insurance from them or they may bundle it with the loan without the knowledge of the borrower. This may be done by the bank due to the high commission they receive for selling the insurance product and also to safeguard their own interest. However, no RBI guideline makes it mandatory for a borrower to buy insurance at all or buy it from the lender. If the bank insists so it amounts to mis-selling. The lender can insist that the borrower takes an insurance cover but the borrower is free to choose the policy type and the insurer.
The above are a few important RBI rules for home loanin India. These rules impact your decision about taking a loan and as well as repaying it; hence they are important.SwitchMe is an end-to-end service that helps you with everything related to your Home Loans – identifying the right lenders to figuring out the best tenure, interest rates to even balance transfers. Are you struggling with RBI home loan guidelines? Signup for expert advise and hassle-free home loan experience. Our customer Mrs. Archana Gaikawad says “My experience with Switch me was excellent. Informative and cooperative staff. 360 degree support offered by switch me team.”
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