RBI Guidelines for Housing Loans in India
Housing loans are secured loans used to finance the purchases of real estate, with the asset being purchased as collateral. Home loans are a great way to borrow money because of their high value, low-interest rates, and long repayment periods. You can pay it back in EMIs like every other loan. After making their last payment, borrowers are given back their property titles. A lender can sell the collateral to repay the debt if a borrower defaults on a loan.
RBI Guidelines Regarding Housing Loans
When applying for housing loans, there are a variety of RBI regulations that you need to follow for home loan eligibility. The Reserve Bank of India (also known as the RBI) limits mortgage loan interest rates and determines eligibility standards. The Reserve Bank of India (also known as the RBI) has established guidelines regarding various aspects of housing loans.
We bring you the latest RBI guidelines for housing loans in India in 2022.
1. Repo Rate
On February 10, 2022, the RBI left the repo rate unchanged for the tenth time. The Monetary Policy Committee unanimously decided to keep both the repo rate (now 4%) and the reverse repo rate (3.35%) unaltered. The repo rate largely determines a home loan’s interest rate. A low repo rate means a decreased cost of borrowing of the bank. The bank then passes on this advantage to borrowers.
2. LTV Ratio: Loan-to-Value Proportion
All banks and NBFCs check the loan-to-value (LTV) ratio to determine the level of risk involved in the loan. To boost homebuying and reduce the cost of mortgages, the Reserve Bank of India (RBI) increased the Loan to Value Ratio to 90% for loans below Rs. 30 lakhs. For loans beyond Rs. 75 lakhs, the LTV ratio is up to 75%. So, the higher the LTV value, the easier it is to acquire a property with a mortgage loan.
Furthermore, RBI has said that expenses like documentation charges, stamp duty, and registration fees will not be included in the LTV calculation. So, your upfront payment of 10% decreases as well. If the total amount of the house loan is less than or equal to Rs. 10 lakh, the bank may include the registration, stamp tax, and other paperwork expenses in the loan amount when calculating the LTV ratio.
3. Prepayment Charges
Housing loans cannot exceed Rs. 1 crore in value or 30 years in tenure. If you somehow get additional money, you can pay off your loan early-partially or completely. To help those who want to prepay their housing loans, RBI has eliminated prepayment costs where interest rates are variable. For the fixed interest rate, the penalty is set at 3%.
4. Balance Transfer Facilities
RBI has waived foreclosure penalties to encourage mortgage refinancing among RBI’s home loan borrowers. Now you can switch to a different bank for a better interest rate and other facilities. So, now if you foreclose your mortgage with your current bank, you will not have to pay any foreclosure charges to the bank.
Things to Consider Before Applying for a Home Loan in 2022
Keep these few things in mind before applying for a housing loan.
1. Compare housing loans
There are various house loan options available, and with the help of online tools, you can compare them all in one place. Compare the rate of interest, the total amount borrowed, the length of the loan, the conditions under which it must be repaid, and any additional fees or expenses associated with it like processing fees, prepayment charges, stamp charges, etc. If you compare these factors before applying for a mortgage, you’ll be better positioned to make a financially responsible decision.
2. Credit Score
Your credit score is one of the essential factors banks consider before approving you for a home loan. Everyone who wants a low-interest rate with favourable terms and conditions should aim for a credit score of 750 or higher since this is the minimum threshold for the best housing loans. In addition, maintaining a good credit score is easy and can be done by merely making on-time payments on your credit card and loan EMIs.
3. Tenure
The monthly mortgage payments, or EMIs, will change depending on your tenure. Banks tend to favour applicants with shorter tenures, which means the total number of years you will be making monthly EMI payments reduces. However, your EMI amount will go up. You may choose a longer repayment period if you are not confident about making high EMI payments. Using an EMI calculator online, you may determine your repayment ability and the best term for your home loan.
4. Eligibility Standards
Before applying for a mortgage, you should familiarise yourself with a lender’s home loan eligibility requirements. It will reduce the likelihood of rejection of your loan application. Factors like age, profession, credit history, income, job history, etc. play a role in determining your home loan eligibility. Since a co-income applicant is considered when deciding the size of a home loan, you may apply for a loan with a husband, son, or unmarried daughter if you want to borrow a larger amount. You can use an online home loan eligibility calculator you can find the banks whose criteria you meet.
4. Processing Fees
To get your mortgage application approved, you must pay a fee to the lender. There may be a 2% + GST processing charge at most banks and NBFCs. But the processing fee often changes from one lender to the next. Find a bank that charges a low processing fee to save yourself some hassle.
Conclusion:
RBI keeps changing the parameters for housing loans depending on various factors. It ensures that all lenders adhere to the same standards. Knowing the latest RBI laws is essential for picking a reliable home loan service. You can book a financial consultant at Piramal Financing for guidance if you want to know more about the RBI guidelines for housing loans.