Planning to get a home loan to buy a property in Lucknow or any other part of India? If yes, you need to know about the RBI Guidelines for home loans before applying. RBI’s home loan guidelines comprise regulatory directives that the Reserve Bank of India sets for borrowers and lenders.
These guidelines cover different aspects of home loans, including rate of interest, eligibility, borrower protection, and risk management.
RBI established these guidelines to ensure that people get a stable, transparent, and fair home loan.
Key aspects of home loan guidelines
Repo Rate
Repo rate refers to the interest rates at which commercial banks obtain money from central banks. Any change in repo rate influences the change in home loan interest rates, too. When the repo rates increase, the rate of interest on a home loan also increases, making the loan a bit expensive for borrowers. Alternatively, if the repo rate goes down, the home loan interest rates decrease as well, allowing homebuyers to see fluctuation in their EMI payments.
Prepayment fees
Prepayment refers to the charges levied by banks/lenders on borrowers. It is charged when a borrower makes a partial prepayment or pays off the loan before the repayment period. With such fees, lenders compensate for the interest rates that they are supposed to get during the loan term. Homebuyers must look into the terms to know whether they include any prepayment fees.
Loan-to-Value (LTV) ratio
LTV refers to the financial metric that banks use to evaluate loan risk. They compare the loan amount against the appraised value of the home or asset the money is given for. Lower the LTV, lower the risk lenders will have. Since borrowers either own or have a larger share in the property, this leads to easy loan approvals and affordable loan interest rates.
Balance transfer flexibility
Balance transfer refers to the option where borrowers can transfer their home loan from one bank to another. Such flexibilities include more favourable terms for the borrowers. These terms comprise lower rates or, in some cases, no rates during promotional periods. This lets the borrowers save money on interest rates or reduce home loan interest rates. Homebuyers need to look into the terms and guidelines associated with it to ensure they are making a good choice by transferring their home loan from one bank to another.
Tips to consider when applying for a home loan
Owning a home is a major milestone in one’s life. And getting a loan from a bank is one of the requisites that fulfills this dream. When you apply for a home loan, make sure to consider the following tips to make a well-informed decision.
Check your financial stability: The first mantra to get a successful home loan approval is to check your financial wellbeing. Check your credit score, income flow, and savings to ensure you can pay off your EMIs. You also need to check the finances required for home improvements, registration charges, and other utilities.
Compare the interest rates:
Ensure to compare different interest rates and end up with the one that fits in your budget and is low than others.
Compare and explore loan options:
Discover and compare various loan options. You can also compare the rate of interest and find out whether the bank provides any government-backed loans. This will help you get the best loan suiting your needs.
Choose a suitable loan term:
There are many misconceptions about home loans. People think that stretching a loan term will lower the monthly installments. The fact is, it increases the interest rates that you pay and also adds to the overall cost of the loan.
Determine the down payment:
Paying a large down payment not only decreases the tenure but also lowers the interest rates. So, check your affordability and make a considerable down payment to get better rates and lower the monthly installments.
Check and maintain your credit score:
Before you apply for a home loan, ensure your credit history is up to the mark. Always check your credit score before applying for a loan.
Conclusion
RBI’s home loan guidelines have clear and simple terms. Both borrowers and lenders need to satisfy these terms to avoid any financial surprises later. Seek professional financial advice from an expert to understand every term clearly.
