All You Need to Know About RBI Guidelines for Home Loans
Nowadays, banks and NBFCs have made it easier for potential home buyers to procure a Home Loan. All you have to do is start an online application, upload your documents, submit it, and wait for the lender to get back to you. Although the approval and sanction process is easy, repayment can be a difficult task, especially if your lender levies a horde of charges on your Home Loan.
If you’re planning to apply for a Home Loan, or already have one, you should be aware of all the charges that will be levied on it. This will help you gauge the total expenses incurred on the loan. While you’ve to bear certain common charges, some others have been cancelled by the RBI. Let’s find out what they are.
RBI Guidelines for Home Loans
RBI Guidelines for Home Loan Prepayment Charges
Once your Home Loan is sanctioned and the repayment period commences, you have to start paying EMIs to your lender. However, during the loan tenure, you have the option of part prepaying a portion of the loan amount. Different financial institutions will have different criteria as to how much this amount can be.
This is a great facility as it allows you to shorten your loan tenure and also save on the interest charges. Before the RBI released new guidelines for Home Loan charges, lenders had demanded 2% to 5% of the outstanding loan amount as prepayment penalty, which they did in order to make up for a part of the interest money that they have lost out on.
In the FY 2014-2015, the RBI asked banks and NBFCs to remove prepayment charges in order to ease the loan burden of borrowers. However, this revision is only applicable to floating Home Loan and not fixed ones.
So, if you’re planning to apply for a Home Loan, you should make sure that your lender does not levy any prepayment charges. Get it included in the loan agreement to avoid future discrepancies.
RBI Guidelines for Home Loan Takeover
At any point, during your Home Loan tenure, if you feel that the interest charges are too high or you’re not entirely satisfied with the services provided by your lender, you can opt for a Home Loan Balance Transfer. This is a great option if you want to take advantage of a low rate of interest provided by another financial institution. However, until the RBI passed new guidelines, a transfer was not that easy because banks and NBFCs demanded hefty foreclosure charges.
The foreclosure charges were levied in order to discourage the borrower from switching to another lender. However, the RBI has asked financial institutions to stop charging foreclosure fees for floating Home Loans. This step has been taken to protect the interest of borrowers and to reduce their loan burden.
With part prepayment and foreclosure charges being abolished, a Home Loan has become one of the best ways of financing a property.