The reserve Bank of India has announced a policy directive, according to which the repayment period of home loans would be extended to 30 years. It is aimed to protect home loan customers from frequent interest rate fluctuations and high monthly installments, resulting into financial problems for middle-class people. RBI has also instructed the banks not to violate regulatory guidelines, according to which the interest rate are allowed to be reset every 7 to 10 years. This is done to protect the interests of the home loan borrowers on https://vbslendumo.com/.
The new arrangement is in accordance with the system of G-Secs, which allows the loan to be paid in 30 years on the basis of bonds issued by the banks. This would be on the basis of fixed rate home loans for a longer period and it would reduce the burden of high equated monthly installments. Banks are provided with the option to fix a reasonable ceiling and floor at the time of interest rate reset that is aimed to revise the interest rate originally charged. This is to protect both the banks and the home loan borrowers from the possible risks emanating from negative trends of economy. According to the directive, banks are also instructed to launch hybrid home loans, which would comprise both variable and fixed interest rates; however, the ratio of fixed interest rate would be much higher than the variable one, in order to regulate the long term repayments.
The bigger tenor home loans mostly have variable rates, because since the year 2000, the interest rates have fallen considerably. The only exception is auto loans, which are short term and carry fixed rates.
In order to offset the impacts of rate fluctuations, because of the prevalence of short-term bank deposits such as five year bonds, and a resulted asset liability mismatch, the banks are advised by the RBI to issue bonds with longer terms. It will ensure the interest rate stability as most of the assets of the bank would have fixed long-term interest rate. The directive also encourages banks to emphasize upon long-term bonds and fixed deposits, which would be exempt from the tax also. It would resolve the issue of long-term funding of home loans at fixed rates for the banks.
The RBI policy directive has also banned the banks from charging prepayment fee on variable rate mortgages, however that would be allowed to do so in case of fixed rate mortgages. Though, in the fixed rate home loans even, the prepayment fee would be restricted to the outstanding amount only. Again, to ensure the misuse of the prepayment penalty, the RBI has directed the banks to keep it reasonable, so that even the fixed rate mortgage applicants do not feel at a disadvantage.
This directive of RBI is influenced by the general statistics that most of the home loans are in the range of 15 to 25 years and are variable in nature. The trend of floating interest rates started from the year 2000, when the rates were reduced drastically and fixed rate was not considered to be a good option. However, to protect the interest of homebuyers against the negative trends of economy, the fixed rate is the only option in the long run.
When applying for a new line of credit a borrower consents to take care of the full advance sum, just as any interest (a level of the advance sum, normally determined on a yearly premise), by a specific date, regularly by making regularly scheduled installments. Vehicle advances observe the majority of the very standards and systems that apply to different advances.
