Current RBI Guidelines for Home loans
1) Repo Rate or (Repurchase Agreement) for Home Loans as of now
2) Loan to Value ratio (LTV)
3) Prepayment Charge
4) Balance transfer provision
- Types of Home Loans
- Home Loan Interest Rates of all Banks in 2022
- Different types of Interest Rates on Home Loans
- How to calculate the interest rate placed on Home Loans
- Home Loan acquisition and repossession
Current RBI Guidelines for Home loans
The current RBI guidelines for home loans are as follows:
RBI guidelines for home loan interest rate
RBI guideline for home loan eligibility
RBI guideline for home loan prepayment charge
RBI has authorized zero prepayment charges across all their banks and branches and NBFCs in case of a floating interest home loan. This, in turn, ensures easy home loan bank transfers. The RBI rules for home loans also state that it is not customary for customers to buy insurance from their lenders. The RBI has also mentioned that registration, stamp duty, and other duty charges should not be included when LTV or Loan to Value is calculated.
- Repo Rate or (Repurchase Agreement) for Home Loans as of now
Repurchase rate or repo rate is a money market instrument, which enables collateralized debt borrowing and lending via the means of sales or purchase. In a repurchase rate transaction, the person who has the property sells it off to a buyer under an agreement to buy back the property within a specific date and time. In case a repo takes place, the price is altered and set according to the current holder by adjusting the difference between the repo interest rate and the money earned from the security
- Loan to Value ratio (LTV)
LTV is a steep risk that banks consider before offering a mortgage. RBI has taken an initiative where it has increased the Loan to Value Ratio up to 90% even if the mortgage is below ₹30 lakhs. The LTV for loans above the amount of ₹75 lakhs is set to 75% which makes it easy for people to purchase a property via the means of home loans.
RBI has even mentioned that the registration, stamp duty, and documentation charges would not be included during the time of calculating LTV. This eliminates the 10% payment that must be made by the mortgage borrower upfront. In case, the cost of the house doesn’t go more than ₹10 lakhs, banks are free to add registration, stamp duty, and other document charges and then calculate the LTV ratio.
The details of the current rates of LTV, risk weights, and standard assets for housing loan sanctions are as follows:
- Prepayment Charge
A home loan usually goes up to ₹1 Crore or maybe more in some cases where the maximum tenure is set up to 30 years. You can end up saving money if you pay up the home loan partially or completely before the tenure ends. To help home loan buyers, prepay the loan, RBI has taken off the idea of prepayment charges in case of floating interest rate where the penalty is set up to 3% in a scenario of a fixed interest rate
- Balance transfer provision
The foreclosure charge has been dropped by RBI. Usually, when a tenure charge is enabled, people must pay a penalty to close off the loan before the tenure is done. People who have applied for mortgages can easily switch to a different bank to gain a lower interest rate which is beneficial. When a person switches from one bank to another while they have a loan, they do not have to pay the end-of-term charge that is set.
Types of Home Loans
Lenders (or) banks offer a variety of loans on mortgages. Home Loans aren’t restricted to only buying houses. Some of the mortgages that are available in the financial market to avail are as follows
Loans to purchase land: Many banks (or) lenders out there are willing to provide loans for the purchase of lands. Purchasing land is flexible, where the buyer can save a lot of money by either turning this land into their house (or) a piece of land into any sort of money turning asset. The best part about purchasing land is that you don’t have to worry about the loss of money since Real Estate is an area where people can sell their lands and earn a lot of money, maybe more. Most of the banks out there provide with a loan that covers about 85% of the amount required to purchase a land.
Loans offered for Home Loan balance transfer: This kind of mortgage allows you to switch lenders and transfer your loan or debt to get a lower interest rate or switch your loan completely over to a different person.
Loans offered for the extension of houses: This loan is applicable for people that are looking to add different rooms into their already built house, for example a person might look to add an extra bathroom, expand their kitchen, or maybe add a garage or maybe a bigger hall into their house.
Top-up Home Loan: This kind of loan allows a person to apply for an extra loan that is usually above the existing loan amount for products like a home loan or a personal loan. This kind of loan is given to people who have a good credit score (A good credit score is about 750).
Home Loans for NRI’s: These kinds of mortgages are specifically designed for non-resident Indians to buy a residential property in India. The requirements like documentation and applications required are different compared to the normal loans and the documentation they require. Many banks offer these loans.
Loans offered for Bridging: Bridging loans are short-term loans that are present for homeowners who wish to buy a new property. This loan usually requires a mortgage on the new property where the time frame is extended for less than two years. In short, an amount of money is lent by the bank for a specific time where the buyer will have the option to either buy a new property (or) a house and sell the other if they wish.
Loans available for Stamp Duty: Stamp duty loans are usually provided to people who want to cover their stamp duty charges while purchasing a property. When you’re about to purchase a property, a stamping charge is set by the state government which must be paid, this is where the stamp duty loan comes in. Many banks offer this loan, and this can help you out with your purchase.
Home Loan Interest Rates of all Banks in 2022
Below are a few examples of the Banks and their Interest rates set by them
Different types of Interest Rates on Home Loans
There are two types of mortgage interest rates charged by banks and they are as follows:
Fixed Interest Rate: As the name implies, the interest rate remains the same and does not change since the rate is fixed. However, you may be allowed to switch over after completing a certain condition of loan possession.
The advantage is that since the rate is fixed, you won’t have to worry about fluctuations in the interest rate and it ends up saving a lot of money in the long run. The disadvantage, however, is that if the standard rate falls off, you won’t benefit from it since the interest component remains frozen
Floating Interest Rate: The interest rate that is charged is subjected to most of the lending rates of the bank. The rate is linked to the latest published rate of the bank which depends on multiple factors like RBI’s monetary policy and lending rate revisions.
The advantage over here is that the most visible perk of opting for the floating rate is that the person has the advantage of being billed based on the current rate. If the rates fall, you can save a lot on interest charges. The disadvantage here is that in a rare case scenario if the standard rate goes up, the loan must bear the brunt of being billed at a higher rate.
How to calculate the interest rate placed on Home Loans
The interest rates can be calculated in the two methods that are mentioned below
EMI Calculator: The interest rate that is applied can be calculated by using a Home Loan EMI calculator (You can find them on most of the bank’s websites). You’ll have to fill out the fields provided in the form to compile and calculate the results
- Home Loan Amount
- Loan Repayment Tenure
- Rate of Interest
Once all these fields are filled up, you can click directly on calculate and then the amount that must be paid in interest will be shown
EMI Calculation Formula: You can use the following formula to calculate your EMI for your mortgage
EMI = [P x r x (1+r) ^n] / [(1+r) ^n-1]
(Here “P” stands for principle, “r” is the rate of interest, and “n” is the number of installments per month. Here ^n in (1+r) ^n is the power of n “number of installments” and / indicates the division).
Home Loan acquisition and repossession
RBI has set guidelines for home loan balance transfers, which helps in refinancing home loans at lower rates and a tendency that suits an individual as per their requirement. RBI has also taken the initiative and relinquished while further adding to the benefits where you can gain the result as well.
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