Housing loan borrowers who have chosen for fixed rates might have trouble free terms on their finance as the Reserve Bank of India has recommended banks to modify the penalty arrangement on prepayments and charge only on the remaining amount.
While applying for home loan a person first thinks of the interest rates to be paid. He/she either opt for fixed rate in which the rates remain same for whole tenure period of opt for floating interest rates in which the rates can be changed according to market fluctuations. Housing loan borrowers who have chosen for fixed rates might have trouble free terms on their finance as the Reserve Bank of India has recommended banks to modify the penalty arrangement on prepayments and charge only on the remaining amount. It also revised that lending institutions must focus on raising long lasting deposits to finance more longer-term loans to assist and decrease the EMI burden on housing loan buyers.
A statement on the possibility of bringing in more long lasting fixed rate loan products by financial institutions such as HDFC Home Loan and others from the banking controller has revealed that banks must accuse prepayment penalty just on the remaining finance amount and not on the value of loan that is normally done. The principle would help customers to save considerable amounts if they were to prepay a loan of fixed interest rate. This approach after the Reserve Bank of India recently authorize to lender to perform with prepayment penalty on floating type of housing loans.
The RBI board that organized the statement has also gave advice to banks to let famous the long lasting deposits to expand a long-term fixed interest rate products. The team observed that the Indian Financial system has government bonds for nearly up to 30 years. This generates a benchmark to matter and cost 30 year bonds by lenders. Financial institutions of India like Axis Bank Home Loan, consequently, make an effort to propose loan-term products of loan, like up to thirty years, that would help to minimize the repayment amount of customers. Fixed-rate long term loan product with cyclic interest rearranges condition say for every 7 to 10 years might offered by banks in addition to plain vanilla fixed interest rate products of loan.
Though, banks must take care that the rearrangement of interest rates may not disobey authorization guidelines on the base rate. Lending institutions might explore the alternative of take-out financing. Adding up, banks may walk around promoting securitization market for improved asset-liability management. The team has also recommended that lenders and India Bank Association must play an important role in educating borrowers regarding probable impact of rate alters on their Equated Monthly Installments (EMI).