Important Home Loan Rules & Regulations to be aware of | AU Small Finance Bank
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Home Loan Rules and Regulations to be aware of | AU Small Finance Bank

What Home Loan Rules and Regulations Should You Be Aware Of?

    The Reserve Bank of India (RBI) is the authority that forms policies, rules and regulations for the BFSI sector by working alongside the government. The regulations decided by the RBI apply to all banks, NBFCs, investors and borrowers. The financial body amends the policies and regulations from time to time as per the financial needs and the micro and macro-economic parameters in the country. So, it is important to know about the Home Loan rules and regulations set by the RBI before you sign up for any loan or make any financial investment. 

    In fact, recently, the RBI reformed Home Loan rules and regulations in India in order to make Home Loans more trustworthy and affordable for borrowers. This article will take you through the significant reforms made in the Home Loan rules.


    Home Loan rules and regulations

    Below are the important Home Loan rules and regulations you must be aware of:

    1. Loan-to-Value ratio rules

    Loan-to-Value ratio is the ratio of a loan to the value of the asset purchased. The RBI made an amendment in 2015 that regulated the loan amount a borrower can avail. As per the new Home Loan amendment, a borrower can avail a loan amount of 90% of the actual property value if it is valued at INR 30 lakh or less.

    If the loan amount ranges from INR 30 lakh to INR 75 lakh, the LTV ratio can be a maximum of 80%. And if you decide to buy a home valued at INR 75 lakh and above with the help of a Home Loan, the maximum LTV ratio can be 75%.


    2. Guidelines on prepayment charges

    Home Loans are generally high value loans, the tenure for which can range from 10 to 30 years. And as a borrower, you are required to pay interest on the principal loan amount. Because of the long tenure, the interest component of a Home Loan ends up being a huge amount. But there is a way by which you can lower your Home Loan interest. 

    You can significantly reduce your Home Loan interest by prepaying your loan, either partially or completely before your loan tenure ends. According to the latest Home Loan rules and regulations, the RBI has waived off the prepayment charges. This means, your lender can’t charge a prepayment penalty on your Home Loan prepayments made by the way of floating interest rates.

    Calculate your Home Loan EMI here – Home Loan EMI Calculator


    3. Home Loan Transfer and foreclosure

    The recent RBI Home Loan rules and regulations have made Home Loan refinancing easier. Say, if you have an ongoing Home Loan and you want to change your lender for a better repayment benefit, you can opt for a Home Loan Transfer easily. 

    You also don’t have to pay any foreclosure charges to transfer your Home Loan with your outstanding principal amount. However, the rule, again, only applies if you are repaying your loan at a floating interest rate. 


    4. Guidelines for lenders and borrowers

    As per the new RBI guidelines, lenders can approve your Home Loan application if you meet the Home Loan eligibility criteria, repayment capacity and have a good credit score. Your lender must ensure that you submit all the necessary documents including your personal and income documents.


    Key Takeaways:

    • The RBI also recommends that when you take on a Home Loan, you must opt for home insurance for the financial security of your family
    • You must thoroughly understand the Home Loan guidelines to make sure that your lender gives you all the benefits mandated by the RBI.
    • Also, you must thoroughly check your loan agreement and make sure that the terms and conditions are the same as discussed with you before signing on the dotted line.

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