Latest News of RBI Guidelines for Home Loans
RBI Makes No Changes In Home Loan EMIs As Repo Rate Remains Same for the 6th Consecutive Time
Feb 08, 2024: The Reserve Bank of India has keps the repo rate unchanged for the sixth consecutive time. The announcement has been made during the Monetary Policy Committee meeting held recently. The repo rate remains the same, i.e., 6.5 per cent which means there will be no changes in the home loan EMIs amount as well.
Additionally, RBI has also disclosed that there will be new rules introduced to benefit borrowers and maintain customer centricity in the entire process. The Reserve Bank of India expects a strong growth of 7 per cent for the Financial Year 2024-25 in the Indian GDP.
All About RBI Guideline For Home Loans
The Reserve Bank of India (RBI) governs the guidelines for home loan and keeps changing them due to various factors affecting the economy. Read the blog to understand what RBI is, and how its guidelines for home loans impact the borrower.
Nationalized in 1949, the Reserve Bank of India (RBI) is the central bank of India that was established to primarily manage and govern our country's financial system. It is also known as the banker’s bank and helps regulate the banking sector.
Similarly, when it comes to financing, RBI works as a central body that gives shape to all policies. Every lender, whether a bank, an NBFC or even a housing finance company is expected to follow the guidelines of RBI while lending a loan, be it any type of loan - Home Loan, personal loan, gold loan, Loan Against Property, Business Loan, etc. Read the article to know about the home loan rules and regulations set by RBI.
RBI Guidelines for Home Loans 2024
We bring you the latest guidelines of RBI for the year 2024.
1. Repo Rate
On February 8, 2023, the Reserve Bank of India (RBI) announced the increase in repo rates by 25 basis points( bps). Therefore, taking it to 6.5 percent from the earlier 6.25 percent. Since the repo rate is directly proportional to the home loan rates, they also witnessed a surge. After the hike, RBI has maintained the repo rate at 6.5 percent given inflation.
In the last MPC meeting conducted from 6 to 8 December, 2023, the RBI decided to maintain a neutral stance on the repo rate, therefore, maintaining it at the current 6.5 percent. This is the fifth consecutive MPC meeting where no change was introduced to the repo rate. With the status quo, there will be no effect on the home loan borrowers as their EMIs will remain unchanged. Thus, home loan rates will remain stable for now.
2. LTV (Loan to Value) Ratio
LTV ratio is an evaluation of lending risk that all financial institutions, including banks and NBFCs, take into account before offering a home loan.
In order to encourage individuals to own a home and to make home loans more affordable, RBI has increased the Loan to Value Ratio up to 90% in case the home loan is below Rs. 30 lakhs. Also, the LTV ratio for loans above Rs. 75 lakhs is up to 75%. Therefore, the higher the LTV value, the easier it would be for an individual to purchase a property by financing it through a home loan.
Furthermore, RBI has also announced that registration charges, stamp duty and documentation charges will not be included at the time of calculating LTV. Therefore, this reduces the payment of 10% that the home loan borrower is to make upfront.. Also, if the cost of the house is not exceed Rs. 10 lakh, banks are allowed to add registration, stamp duty and other documentation charges to the house's cost to calculate the LTV ratio.
Also Read: Home loans' tax benefits in 2024
3. Prepayment Charges
A home loan can go up to Rs. 1 crore or even more in some cases, and the maximum tenure goes up to 30 years. You can save money on your home loan if you pay it partially or completely before the tenure ends. This can be achieved if you get some extra money due to any reason (profit in business or salary hike). Therefore, to help home loan buyers prepay the loan, RBI has waived off the prepayment charges in case of floating interest rate and has kept the penalty up to 3% in case of a fixed interest rate. Earlier, the lenders were asking for a prepayment penalty of up to 5% of the loan amount.
4. Balance Transfer Facility
In order to help home loan borrowers to refinance their home loan, RBI has waived the foreclosure charges. Home loan borrowers can now easily transfer their current home loan to another bank to avail of a lower interest rate. Therefore, when the borrower forecloses his home loan from the current bank, he does not have to pay the foreclosure charges.
Also Read: 5 Ways to pay home loan faster
Now that we know the latest guidelines by RBI for a home loan, let us understand what we should keep in mind before applying for a home loan in 2024.
Things You Should Consider Before Applying for a Home Loan in 2024
1. Compare Home Loan Options: With the easy accessibility of online platforms like Magicbricks, you can compare various home loan options under a single roof. Your research should include important aspects of a home loan like interest rates, loan amount, tenure and other fees and charges (processing fee, prepayment charges, stamp charges, etc.) Comparing these factors before applying for a home loan allows you to choose an affordable home loan option.
2. Credit Score: A credit score is one of the most crucial factors banks consider before offering a home loan. So, any individual planning to apply for a home loan and requiring a low interest rate with favourable terms and conditions should maintain a good credit score of 750 or above. Also, maintaining a good credit score is easy and can be done by just paying your loan and credit card EMIs on time.
3. Tenure: If you are planning to avail of a home loan, you must decide on the tenure before you avail it. The EMIs of your home loan depend on your tenure. Usually, banks prefer applicants with a shorter tenure and it is also beneficial for an individual as he is required to pay EMIs for the least period of time. However, if you are comfortable paying EMIs for a longer tenure, you can opt for that too. You can analyze your repayment ability by using an online Home Loan EMI Calculator and decide the tenure accordingly.
4. Eligibility Criteria: Before you apply for a home loan, it is important to know the eligibility criteria of a specific lender so that your home loan application does not face rejection. The home loan amount that you would be eligible for will depend on your age, nature of work, credit score, income, tenure, etc. As income plays a major role in deciding the home loan amount, you can apply for a loan with a co-applicant (spouse, son, unmarried daughter) as an additional income will help in increasing the loan amount. You can use an online Home Loan Eligibility Calculator and list down a few banks matching your eligibility.
5. Processing Fees: It is a fee that every home loan borrower has to pay to the lender to process the home loan application. Usually, most banks and NBFCs charge a processing fee of up to 2% + GST. However, the processing fee can vary from lender to lender. Therefore, you must look out for the bank charging a low processing fee to avoid additional burdens.
6. Down Payment: When you apply for a home loan, you are asked to pay a down payment of 10% to 15% of the total home loan amount. And the rest of the home loan amount is converted to the home loan EMI that you pay till the tenure ends. Therefore, if you have enough savings available with you, you can increase the down payment and can save on the interest that you are supposed to pay in future.
7. Documents: A home loan involves collateral and hence also a large number of documents. Therefore, before you consider applying for a home loan with a bank, you must always read the terms and conditions of the bank and also inquire about all the documents required. If you fail to submit all the necessary documents, the lender may reject your loan application.
Summing Up: RBI Guidelines for Home Loan
RBI keeps changing the guidelines for home loans to encourage more and more individuals to apply for them and to get all the lenders on the same page in terms of rules and regulations. It is always good to be familiar with the latest guidelines of RBI so that you are well aware and choose the right home loan lender.
Other Updates on RBI Guidelines for Home Loans
RBI Issues New Home Loan Guidelines for Lenders
Sep 14, 2023: The Reserve Bank of India has issued new guidelines related to timely release of properties against home loans. RBI has stated that the lender needs to release the property documents within 30 days from the date of full home loan repayment. In case of a delay, the lender will be liable to pay a compensation of Rs.5,000 per day to the borrower.
The bank has taken this initiative to support borrowers and get their property documents back in time after they pay off all their home loan dues. The action was taken in response to multiple cases reported by customers on delay in receiving property documents by banking and non-banking institutions even after repaying the entire loan amount.
If the original property documents have been lost or damaged the lender or the regulated entity must help borrowers deal with property-related issues in regards to the same. The authorities responsible for the loss will also be bound to help borrowers get the duplicate copies of their property documents.
Home Loan Lenders Request Reserve Bank of India to Include Stamp Duty and Registration Charges in Project Cost
Sep 06, 2023: Home loan lenders have appealed to the Reserve Bank of India to provide home loan seekers an extended financial support when providing home loans. These lenders reached out to RBI in August 2023 to get an approval on including Stamp Duty and Registration Charges of properties in the project cost and the applicable home loan amount.
Lenders expect the Reserve Bank of India to take a decision in their favour and increase the home loan eligibility for borrowers. As per the officials, home loans are secured loans and are backed up with collateral so the amount of risk is low.
Once approved, the initiative will help homebuyers finance their properties by borrowing a larger amount of home loan as per their eligibility. RBI may also add a maximum limit to Stamp Duty and Registration Charges to be added to the project cost.
Also Read: How to reduce home loan interest rate?