1 min read
25 May 2021

When you are taking a loan of any kind, it is essential to be aware of the guidelines that govern it. Familiarising yourself with RBI’s guidelines for a home loan ensures that your lender keeps true to government policies and doesn’t overcharge you.

Loan-to-value ratio

The Loan-to-Value (LTV) ratio is a financial metric used in lending, particularly in mortgages and real estate. It indicates the percentage of the property's value that a loan covers. A higher LTV ratio suggests more risk for lenders, potentially leading to higher interest rates or the need for mortgage insurance. Regulatory guidelines often set maximum LTV ratios. Real estate investors use LTV ratios to evaluate their financing structure. In loan applications, a lower LTV ratio enhances the chances of approval. It's a crucial concept for anyone seeking property financing.

Prepayment charges

RBI guidelines for home loan prepayment charges are also essential. RBI has abolished prepayment charges to encourage borrowers to pay off the loan in case of an increase in their income. This can help you reduce your tenor and your EMIs, which is very beneficial.

Home loan takeover and foreclosure

RBI has set guidelines for home loan balance transfers as well, so you can refinance your home loan at lower interest rates and a tenor that suits you. RBI has also waived off foreclosure charges, further adding to the benefits that you can accrue.

Here is an infographic that explains the mandatory RBI guidelines and will help you choose the right Home Loan.

Additional Read:

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