Hidden Challenges in Availing in Home Loan

Emilly Leia

, Finance

When it comes to financing, the central agency is the Reserve Bank of India serves as the Central agency that shapes and frames all the policies. Every type of lender, be it a bank, a housing finance company, or a non-banking finance company is expected to follow the policies framed by the Reserve Bank. The same terms of use are applied for the loan borrowers who must follow the guidelines of RBI while taking on a loan or making an investment. These guidelines are however amended from time to time on various parameters. In this blog, we will be looking at the rules and regulations in India which are laid down by the RBI.

Home Loans Rules and Regulations

=> General guidelines for home loan lenders and borrowers

As per the guidelines put forward by RBI, lenders should approve the home loan only to the individuals who meet the` eligibility criteria, display their repayment capacity, and have a credit score of 750 and above. Home loan lenders must also ensure that borrowers submit all the necessary documents including personal and income documents and those who agree to sign a document stating the loan repayment rules laid down by lenders.

=> Guidelines on loan to value ratio

By the year 2015, some amendments were made by the RBI impacting the home loan amount that a borrower can avail. As per the new rules and regulations for home loans, borrowers can avail a loan amount of 90% of the actual value of the property if the property is valued at 30 lakhs or less. In a case where the home loan amount exceeds 30 lakhs and up to 75 lakhs, the LTV ratio can be 80%. In case an individual decides to purchase a home that costs 75 lakhs or above by taking out a home loan, in such a case the LTV can be 75%.

=> Guidelines on prepayment charges

These are typically high-value home loans that’s duration is from 10 to 30 years and borrowers will have to pay an interest rate on the principal home loan amount. The interest amount is a huge amount that the borrower must pay but this can be reduced significantly if the borrower decides to prepay the loan, either partially or completely before the chosen home loan tenure. As per the new amended rules and regulations on home loans, the RBI has suggested to waiver off the prepayment charges. Home loan lenders are prohibited from charging a penalty in the name of the prepayment penalty for a home loan in case of floating interest rates.

See Also: Frequently Asked Questions on Home Loans

=> Guidelines on home loan balance transfer

A home loan balance transfer lets the loan borrower transfer from loan with a higher interest rate procured in the past to a loan that loan with a lower interest rate. The RBI suggests that individuals availing a home loan must opt for home insurance to secure the financial future of their family in case there is an unfortunate passing away of the borrower before the completion of the loan repayment process.

People often fulfill their wish of becoming homeowners by availing a home loan. It is one of the most manageable ways to afford a property. When you plan to pot for a loan, various charges are not in the open for the borrower. While most of the people are only aware of the processing fee and stamp duty charges, there are quite a few other changes too that the borrower will have to pay during the entire process. So, to save the borrowers from the trouble of surprise expenditure during the process here is a list of other charges that the borrower needs to be aware of.

  • Loan processing fee
    This is a basic charge which levied by most of the lenders. This fee includes the charges of collecting the documents at the time of application filing of the home loan. This fee is non-refundable and irrespective of loan sanctioning. Typically, a nominal fee of 0.5% to 1% out of the loan amount is charged as the processing fee.

  • Administrative charges
    An administrative fee is part of the loan process in several firms. This fee is non-refundable and includes the charges of evaluation and verification of the property in question. All the banks have their teams that keep a check by evaluating the property according to which a home loan amount is determined.

  • Conversion fee
    The interest rate plays an integral part in the procedure of home loans. The interest rate on any home loan can be calculated using a home loan EMI calculator which not only gives the borrower the figure of interest rate but also the EMIs on the loan payable by the borrower. The home loan EMI calculator is a very user-friendly tool and can fetch efficient results. If there is any change in the interest rate from the time of loan activation, the interest rate can be changed by paying a nominal conversion fee. Conversion fees can be seen as the fee that the borrower pays so that the interest rate on the current loan can be reduced. This fee depends upon the difference between the figures of the interest rate. 

  • Overdue payment charges
    This is another type of fee that the bank can charge the borrower. It is quite clear by its name that this is a charge levied by the lender on borrowers in case of a delay in paying the monthly installments. Borrowers must be punctual when it comes to monthly installments so that this extra money is saved. In case a borrower fails to pay EMI in time, a hefty penalty can be charged by a lender.

  • Prepayment charges
    When you avail of a home loan, as a borrower, you must read the document carefully, especially the clause regarding prepayment charges. The Government of India has wavered off the prepayment charges on home loans which can be availed using a floating interest rate. As far as the home loans with a fixed interest rate are concerned, the lender can still levy a prepayment charge. A loan borrower should go for this loan transfer only if it makes financial sense, otherwise, it is better to put your money in another investment and see the loan to term.

These are the diverse types of home loan charges that all borrowers should be aware of. It is in the customer’s best interest to gain as much knowledge as possible about these home loans and the additional charges associated with it.

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