A home loan is a significant long-term financial commitment. This is why, a borrower must know the liabilities and rights. Even a slight change in the terms and conditions of the loan agreement, or its fees and charges can put a huge impact on the EMI and on the borrower’s finances. Therefore, it is best to be aware of the rules and regulations of a housing loan before initiating the application.
The country’s central bank, Reserve Bank of India, lays down banking regulations from time to time for seamless functioning and legal compliances. It keeps changing these rules as per the current economic situation to safeguard the interest of the borrower. For a home loan, RBI has laid down the following rules and regulations.
- Prepayment
You can save on your interest outgo and cost of borrowing by prepaying your home loan. Lenders usually charge 2-5% of the loan amount as prepayment charges. Often the prepayment charges are high, thereby, reducing the savings you can make via prepayment. As per RBI’s mandate, the lender cannot charge you any prepayment charges when availing a floating interest rate loan. However, there are no such rules for waiver of prepayment charges on fixed interest rate loans.
- Home loan transfer
Similarly, when you transfer the loan with a different lender for better interest rates or features, you need not pay prepayment charges. RBI has waived the prepayment charges on home loan balance transfer of floating interest rate loans. This would help you save money when you foreclose or transfer your loan.
- Loan to value ratio
Loan to value ratio is the maximum loan amount you can avail against your collateral property. RBI had made some changes in this LTV based on the value of the property. As per RBI, if your property is valued below 30 lakhs, the lenders can approve a loan of up to 90% of the property. That means that you can get a loan of up to 90% of your property’s value. If the value of the property is above 30 lakh and below Rs 75 lakh, the lenders can approve a home loan of up to 80% of the property. Similarly, the LTV of properties valued above Rs 75 lakhs has been capped at 75%. A higher LTV ratio makes it easier to afford a house by opting for a loan.
- Home loan insurance
RBI advises the borrowers to opt for a home loan insurance with a housing loan. While it is not mandatory, RBI recommends it. With a home loan insurance, the borrower can provide financial security to the family in his/her absence. RBI also opines that lenders can approve the loan application of the applicants who have a credit score of 700 and above, furnishes the requisite documents and meets the eligibility criteria.
While applying for a housing loan, you must know all the rules and regulations associated with it. It helps you make an informed decision and avoid making mistakes that can cost you dearly.
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