Home loan borrower v/s new RBI guideline | Loan to value in Home loan reduced

The Reserve bank of India (RBI) has chosen to tighten a few norms for home loans,adding to borrowers woes.In its recent policy review,RBI has taken three steps that will adversely impact prospective homebuyers who are dependent on home loans.To begin with,the loan-to-value ratio has been lowered to 80% from 85%.This means that you can borrow only up to 80% of the value of the property that you plan to purchase.The remaining 20% has to be funded out of your own/family savings.Secondly,RBI has also increased the standard asset provisioning requirements to 2% for all the teaser rates offered by scheduled commercial banks.

Teaser loan rates typically offer loans at a fixed rate for the first three years and then move on to the floating rate.The fixed rate is as low as 8-9 %,which is fairly insulated from the rate swings at least in the first three years.These loans were a boon to customers who typically finish their repayment within 5-7 years.RBIs stance on this issue is: This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate,which is higher than the rate applicable in the initial years,becomes effective. The central bank has also noted that at the time of initial loan appraisal,many banks do not take into account the repaying capacity of the borrower at the normal lending rates.This is the reason why the central bank has increased the risk weight for residential housing loans,of 75 lakh and above,to 125% .

Let us assume you have borrowed 90 for a property valued at 100.While you are repaying the loan,if the property value dips to 80 at any point of time,banks can ask for additional collateral.This is because they should have lent only 72 as per the loan-to-value ratio.At this point of time,you have to provide additional collateral or pay the extra margin money.If you are not in a position to pay up the extra cash/collateral,the bank can categorise you as a defaulter.This is clearly mentioned in the home loan agreement.

Source: Economic times