The COVID-19 pandemic brought the world economy to a standstill. Almost all sectors were hit badly, but the real estate sector witnessed a very steep downfall. To give this sector a boost, the RBI came up with special guidelines. The Reserve Bank of India (RBI) is the central bank of the country and one of its many functions is to ensure economic growth within the country. The RBI guidelines for Home Loans have been designed to give a boost to the real-estate sector and help it recover from the aftermath of the COVID-19 crisis. In this article, we explore the latest RBI guidelines for Home Loans and try to understand the impact they will have on the Home Loan sector.
Repo Rate Changes Brought About by the Reserve Bank of India
To give a boost to the real estate sector, the Reserve Bank of India lowered the repo rate. The repo rate is the rate at which the commercial banks within a country grant a loan to a borrower. The commercial banks operating in the country add a spread to this repo rate and that becomes the Home Loan interest rates that the banks charge. During the pandemic, the RBI lowered the repo rate which made Home Loans quite cheap. In fact, the RBI lowered the repo rate so much that the Home Loans became almost the cheapest they had ever been. This encouraged more and more people to opt for Home Loans. However, the sector is witnessing a resurge now and therefore, the RBI is systematically increasing the Repo Rate. The last repo rate hike happened on February 8, 2023 when the RBI hiked the repo rate by 25 basis points.
RBI Guidelines Regarding the LTV Ratio
The LTV ratio is the portion of a property’s total market value that can be released as a loan, expressed in terms of percentage. As per the latest RBI guidelines, when the loan value is less than Rs.30 Lakh*, lenders can sanction up to 90%* of a property’s value as a loan. However, if the value of the housing loan is more than Rs.75 Lakh*, the lender can only sanction up to 75%* of a property’s value as a loan. Furthermore, as per the latest RBI guidelines for Home Loan, banks are not to consider stamp duty, registration charges and documentation charges while calculating the LTV ratio.
RBI Guidelines Regarding the Prepayment Charges
The interest that a borrower pays on a loan depends on the tenor of the loan. The longer the loan tenor, the higher the total interest pay-out. Therefore, whenever borrowers obtain a good sum of money, they consider either prepaying a loan or foreclosing it altogether. Home Loan prepayment refers to the process of prepaying a part of the Home Loan and Home Loan foreclosure refers to prepaying the entire loan amount in one go. As per the latest RBI guidelines, lenders cannot charge any Home Loan foreclosure fee from borrowers who are on floating interest rates.
If a borrower is on a fixed rate of interest and they opt for prepayment or foreclosure, the lender cannot charge anything more than 3%* as prepayment or foreclosure fee. Thus, if you are planning to opt for Home Loan Balance Transfer, you need not worry about Home Loan foreclosure charges.
RBI Guidelines Regarding Under-Construction Properties
Borrowers can avail of Home Loans for both ready-to-move-in and under-construction properties. However, the disbursal method and percentage differ in both cases. In the case of Home Loans availed of to fund the purchase of ready-to-move-in properties, the entire Home Loan amount is disbursed in one. However, as per the latest RBI guidelines for Home Loan, lenders cannot disburse the entire loan amount in one go in the case of under-construction properties. In the case of these properties, the lender must disburse the loan amount based on the stage of construction that has been completed.
The Reserve Bank of India releases RBI guidelines for Home Loans each year to safeguard the interest of both lenders as well as borrowers. Lenders must keep these guidelines in mind while framing Home Loan policies and borrowers must keep these in mind to make sure no lender is cheating them in any way.
*Terms and conditions apply.
