If you are reading this, you might know that availing a home loan is an easy means of financing your dream home. Loans allow you to fund your house without draining your hard-earned savings. You can choose a flexible tenure and repay the amount in flexible emis. However, a home loan is an obligation that stretches up to decades. Therefore, you must know the various aspects of home loans that can be beneficial for you. The Reserve Bank of India is responsible for the effective functioning of the banking mechanism. For home loans, it has laid down some guidelines that you should know about.
Loan to Value Ratio
In 2015, RBI set new guidelines concerning the amount that borrowers can avail as their home loans. As per the guidelines, the Loan to Value Ratio (LTV) has been set at 90% of the actual value of the property if the property value is Rs 30 lakhs or less. Similarly, the LTV for a property value above Rs 30 lakh and below Rs 75 lakh has been capped at 80%. For Property valued at Rs 75 lakh and above, the maximum LTV has been fixed at 75%. Typically, a higher LTV makes a home more affordable and easier to buy. Moreover, the stamp duty, documentation, and registration charges have been excluded from the LTV ratio, reducing the amount a borrower needs to pay upfront.
A significant portion of the loan repayment is the interest component. As a borrower, you can save money on interest outgo if you prepay the loan. Earlier a borrower had to pay 2-5% of the property value as prepayment charge if he/she wished to close the loan before the end of the tenure. However, the prepayment charges on floating interest rate home loans have been waived off by the RBI. That means lenders cannot charge any prepayment charges on home loans if it has a floating interest rate.
The waiver of prepayment charges has also proved beneficial for those who want to transfer their loan. According to the RBI mandate, lenders cannot charge a penalty or prepayment charges when a borrower transfers a home loan from one lender to another. He/she can foreclose an existing loan and take a new one with a different lender for a lower interest rate or better terms without incurring penalty. However, there is no provision of not charging a penalty or fee for transferring a loan with a fixed interest rate.
RBI also suggests taking an insurance cover for a home loan to meet the repayment burden in case of any unforeseen event. Moreover, RBI opines that lenders can approve the home loan application of applicants who meet the desired home loan eligibility criteria, submit the required documents and have a credit score of 700 and above.
Being awae of these guidelines would help you make an informed decision when you wish to take a home loan.