The Reserve Bank of India (RBI) has unveiled a pioneering Home Loan Resetting Programme, aiming to bolster transparency and fairness for borrowers. This initiative aims to simplify the process of resetting floating loans, ensuring clearer communication and better decision-making. RBI's supervisory reviews have uncovered instances where the tenor of floating rate loans has been extended by lenders without the proper consent or communication to borrowers. To rectify this, the central bank is implementing a comprehensive conduct framework for Regulated Entities (REs) to address borrowers' concerns.

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“To address the issue, it is proposed to put in place a proper conduct framework to be implemented by all REs to address the issues faced by the borrowers,” RBI said in a statement.

Empowering borrowers: How it works

The Home Loan Resetting Programme focuses on open dialogue between lenders and borrowers. Lenders are required to clearly explain loan tenor and equated monthly interest (EMI) resetting. Borrowers can choose fixed-rate loans or early loan closure, with disclosed incidental charges. This ensures borrowers fully grasp their decisions.

Additionally, borrowers are given the choice to switch to fixed-rate loans or opt for early loan foreclosure, should they deem it necessary. Crucially, all incidental charges linked to these choices will be transparently disclosed, ensuring borrowers have a comprehensive understanding of their decisions.

RBI's Home Loan Resetting Programme serves as a safeguard for borrowers, ensuring they are equipped with all the necessary information to make informed choices about their loans. By establishing transparent channels of communication, borrowers gain the power to adjust the loan tenor, explore fixed-rate alternatives, or even repay loans ahead of schedule, all while being fully aware of associated costs.

Floating interest rate vs Fixed interest rate

Understanding the difference between floating and fixed interest rates could save you more money on home loan repayments. Floating rates vary with market shifts, offering potential savings but market uncertainty. Fixed rates remain steady, granting borrower’s stability but might start higher.