Complete Guide to Home Loan Rules and Regulations in India
Lending institutions like banks and non-banking finance companies (NBFCs) work under the supervision of the Reserve Bank of India (RBI). The central bank reviews the home loan rules and regulations from time to time and introduces certain changes to ensure a better environment for all stakeholders.
The RBI announced the latest regulatory changes. Here is a look at what the guidelines say:
Waiver of Prepayment Fee: The tenor of home loans is usually long, ranging from 10 to 20 years. Homebuyers have the option of prepaying to reduce their home loan EMI outgo. Home buyers can do this either by prepaying the entire amount or partially paying off the principal amount. So far, banks and NBFCs had charged a prepayment fee ranging from 2% to 5% of the outstanding loan principal. This fee was meant to offset the perceived losses incurred by lenders resulting from the foreclosure of a home loan. According to the latest RBI guidelines, lenders will not be able to charge any fee for prepayment on floating interest loans. This will also hold true for the home loan balance transfer process.
Zero Charges on Home Loan Balance Transfer: Many homebuyers switch to lower interest loans by transferring the loan balance to a different lender. This is an effective way to reduce home loan rates and enjoy lower equated monthly installments (EMIs). Until January this year, banks and NBFCs had levied foreclosure charges ranging from 3% to 5% on loan customers who opted for home loan balance transfers. The RBI has now waived all foreclosure charges. Homebuyers will now find it easy to switch to floating rate loans without paying anything extra. But banks and NBFCs may still charge a pre-payment penalty of 1–3% on fixed-rate loans.
Loan-to-value Ratio: As per the new RBI guidelines, a borrower can get a housing loan up to 90% of the property value. But this is applicable only to loans for property valued under Rs.30 lakh. For property valued between Rs.30 lakh and Rs.75 lakh, the loan-to-value ratio is 80%. For property valued in excess of Rs.75 lakh, the loan-to-value ratio is 75%. NBFCs like Bajaj Finserv offer housing loans up to Rs.3 crore with a maximum tenor of Rs 20 years. You can also opt for a top-up loan of Rs.1.50 crore depending on the primary loan amount. You can visit the Bajaj Finserv website to check out your pre-approved offers and your home loan eligibility.
Insurance on Loan not Mandatory: Home loan providers generally insist on customers insuring their home loans. Housing loan insurance ensures that, in the event of the EMI payer’s death, the family members are not burdened with the debt. With the changes in the regulation, home loan insurance is no longer mandatory. It is up to the customer to decide if they at all need the insurance component. The customer is also free to choose the insurance provider for the loan. It is not necessary that they take it from the lender or from the lender’s agent.
Many people take out house loans to finance their housing dreams. Hence, the government ensures that the market is strictly regulated and people are not inconvenienced. The RBI takes stock of the situation from time to time and modifies the rules and guidelines for home loans. As a home buyer, you should be aware of these changes so as not to fall victim to mis-selling. Make sure to do your research and read the fine print before signing a loan agreement.