The Reserve Bank of India (RBI) has issued guidelines to assist eligible candidates planning to purchase a home in availing of home loan benefits. Explore the latest RBI guidelines for home loans to stay informed.
All About RBI Guideline For Home Loans
The Reserve Bank of India (RBI) establishes and regularly updates guidelines for home loans in response to various economic factors. Read the blog to learn more about the RBI and how its guidelines for home loans affect borrowers.
Nationalized in 1949, the RBI serves as India's central bank, primarily responsible for managing the country's financial system. Often referred to as the banker’s bank, it plays a crucial role in regulating the banking sector.
In terms of financing, the RBI acts as the central authority shaping all policies. Every lender, whether a bank, NBFC, or housing finance company, must adhere to RBI guidelines for home loans and other types of loans, including personal loans, gold loans, loans against property, and business loans. Read the article to discover the home loan rules and regulations set by the RBI.
RBI Guidelines for Home Loans 2024
We bring you the latest guidelines of RBI for the year 2024.
Also Read: 7 Best Home Loan Apps in India
1. Repo Rate
In the 6th consecutive MPC meeting held in the first week of June 2024, the Reserve Bank of India (RBI) decided to keep the repo rate unchanged. The last increase in the repo rate occurred in February 2023, when it was raised by 25 basis points (bps) from 6.25 percent to 6.5 percent. This decision aligns with the RBI guidelines for home loans, which are influenced by the current repo rate.
2. LTV (Loan to Value) Ratio
The Loan to Value (LTV) ratio is a key measure of lending risk that financial institutions, including banks and NBFCs, evaluate before approving a home loan.
To encourage home ownership and make home loans more accessible, the RBI guidelines for home loans have increased the LTV ratio to up to 90% for loans under Rs. 30 lakhs. For loans exceeding Rs. 75 lakhs, the LTV ratio is set at up to 75%. A higher LTV ratio makes it easier for individuals to finance the purchase of a property through a home loan.
|
Home Loan Amount |
Loan to Value Ratio (LTV Ratio) |
|
Up to Rs. 30 Lakh |
90% of the property value |
|
Between Rs. 30 Lakh & Rs. 75 Lakh |
80% of the property value |
|
More than Rs. 75 Lakh |
75% of the property value |
Additionally, the RBI guidelines for home loans specify that registration charges, stamp duty, and documentation fees will not be included when calculating the LTV ratio. This adjustment reduces the upfront payment required from home loan borrowers. Moreover, if the cost of the house does not exceed Rs. 10 lakhs, banks are permitted to include registration, stamp duty, and other documentation charges in the house's cost for LTV ratio calculation.
Also Read: What exactly is the repo rate, and how does it affect the EMIs on your home loan?
3. Prepayment Charges
A home loan can reach up to Rs. 1 crore or more, with a maximum tenure of up to 30 years. You can save money on your home loan by making partial or full prepayments before the tenure ends, which can be possible if you receive extra funds from sources like business profits or salary hikes. To assist home loan borrowers in prepaying their loans, the RBI guidelines for home loans have eliminated prepayment charges for floating interest rates and capped the penalty at 3% for fixed interest rates. Previously, lenders could impose prepayment penalties of up to 5% of the loan amount.
4. Balance Transfer Facility
To assist home loan borrowers in refinancing their loans, the RBI has waived foreclosure charges. This allows borrowers to easily transfer their existing home loan to another bank to benefit from a lower interest rate. Consequently, when a borrower forecloses their home loan with the current bank, they are not required to pay any foreclosure charges.
Now that we are aware of the latest RBI guidelines for home loans, let us understand what factors to consider before applying for a home loan in 2024.
Home Loans Eligibility As Per RBI Guidelines
Find below the home loan eligibility criteria set by the Reserve Bank of India.
- Debt Repayment Capacity: A good debt repayment capacity, calculated based on the applicant's credit score, plays a crucial role in the home loan application approval process. A high credit score and a solid debt repayment record facilitate a hassle-free home loan application approval.
- Home Loan Agreement: According to RBI guidelines for home loans, borrowers must sign the loan agreement after home loan approval. This agreement outlines all terms and conditions that borrowers must accept before the loan amount is disbursed. The conditions include interest rates, home loan amount, tenure, and the repayment schedule.
- Home Loan Insurance: The Reserve Bank of India highly recommends that applicants consider taking a home loan insurance policy. This policy safeguards the home loan in case of unforeseen circumstances, such as the borrower's demise, helping to reduce the financial burden on family members who would otherwise have to settle the home loan.
- Documents Approval: Home loan applicants must provide an essential set of documents when submitting their application. These documents must be accurate and up to date, as they are used by the lender’s team to verify the applicant's identity, address, and income in accordance with RBI guidelines for home loans.
Also Read: Understanding Different Types of Home Loans: Know Complete Information
Ans 1. A home loan tenure is the time period that a lender takes to repay the loan amount. A home loan tenure usually starts from 2 years and goes up to 30 years.
Ans 2. If you miss your home loan EMI, you will have to pay a late payment penalty.
Ans 3. Yes, almost all the lenders ask for an ITR to process your home loan application.
Ans 4. No, a credit score of 750 and above is considered to be a good credit score if you are planning to apply for a home loan.
Ans 5. Yes, a rise in the repo rate can lead to an increase in EMIs as the interest rate of commercial banks changes when the repo rate changes.
Ans 6. The current and updated RBI repo rate for home loans in India is 6.5 per cent.