Reserve bank of India is the central body for financial regulation in India. The rules and regulations made by RBI affect both lenders and borrowers. Bank, financial institutions, loan distributors, and loan applicants have to adhere to the rules framed by the apex body for sanctioning and approval of the loan. Reserve Bank of India makes amendments and improvisations from time to time after considering the macro and micro-economic indicators and market sentiments.
Rules and regulations for Home Loan in 2021
General guidelines for approval of the Home Loans include assessing repayment capacity, eligibility, a credit score of 750 and above, authentic documents, etc.
Lenders should ensure that borrowers submit all the required documents as per the guideline of the RBI. In addition, you should follow news and current affairs to stay updated on Government initiatives, RBI guidelines regarding documents, eligibility, etc.
Loan to value ratio
LTV or Loan to Value Ratio has been categorized into three levels by the Reserve Bank of India. The loan to value ratio is a loan against the actual value of the property.
- Loan for thirty lakhs or less can avail LTV of up to ninety percent
- Home Loan from 30 lakhs to 75 lakhs can have an LTV of 80 percent
- Individuals applying for more than 75 lakhs get an LTV of 75 percent
What are LTV and its importance?
Banks and financial institutions evaluate risk levels before approving a home loan. A high rate of interest led to higher equal monthly installments. Borrowers need to take insurance for high-value house loans.
Loan to value measurement is important for lenders to measure their risk against the home loan. Therefore, lenders compare the value of the property and the amount of loan applied to decide on the home loan application.
Rules for prepayment and foreclosure
Foreclosure of the home loan refers to prepayment of the outstanding loan amount, either part payment or full payment, before the scheduled closure of the loan.
As per the Reserve Bank of India directives, Non-Banking Financial Corporations cannot charge prepayment charges for floating-rate loans and individual home loan customers.
In the case of Banks, most of them do not charge a prepayment penalty. However, some of them levied between two to six percent of the remaining house loan amount.
For example, if you are closing the home loan account by paying the lender Rs. 12 lakhs, the bank will charge between twenty-four thousand to sixty thousand INR.
Part-payment for foreclosure
In part-payment, borrowers pay the outstanding loan amount in parts. Then, banks charge between 0.5 to 2 percent for each payment on the remaining loan amount. Again, for part-payments, floating-rate schemes are exempted.
Here you as a borrower need to understand that by paying part-payments and charges every time, you will eventually pay a lot more than the actual outstanding amount.
If you want lower equal monthly installments, always increase the amount for down-payment. Down-payment depends upon loan amount, financial institution’s policies, your eligibility, etc. It could be from 2.5 to 25 percent of the home you are planning to buy.
You should save and organize your finance to arrange larger down-payment and lesser monthly pay-outs.
- Payment of the EMIs on the given date. Maintain a reminder for the payment date. Several banks provide an option to automate the EMI by linking your savings account with the bank.
- Use a home loan eligibility calculator, compare different home loan schemes on comparison websites.
So, if you are planning to own a house and searching for home loan options, follow these rules and regulations and select the best one for your home. Then, plan smartly and enjoy your dream home with convenient house loan schemes.