Has your lender increased the home loan EMI tenure even without asking you? It is no more a surprise as banks have been increasing the repo rate-linked home loan EMI terms in the wake of rising key policy rates. In many cases, it has been reported earlier this year, that home loan EMI tenures are running beyond the retirement age for many borrowers.

When the interest rate goes up, borrowers have two options – either they can increase their EMI amount or they can ask the bank to increase their EMI tenure to keep their monthly outgo for loan repayment unchanged.

However, the problem starts when banks increase the EMI tenure of floating rate loans even without taking the consent of the borrower as it leads to a big increase in the home loan interest that the borrower pays during the term of the loan.

Now, the Reserve Bank of India has decided to put an end to this practice by lender banks.

In its bi-monthly ‘Statement on Developmental and Regulatory Policies’ released today, the RBI said, “The supervisory reviews undertaken by the Reserve Bank and the feedback and references from members of public have revealed several instances of unreasonable elongation of tenor of floating rate loans by lenders without proper consent and communication to the borrowers.”

Also Read: How to reduce home loan tenure if EMI is stretching beyond retirement age: 5 tips

The central bank has decided to address this issue by putting in place a proper conduct framework to be implemented by all regulated entities (REs).

“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,” the RBI said.

What options borrowers will get

According to RBI, the framework envisages that lenders should clearly communicate with the borrowers for resetting the tenor and/or EMI, provide options of switching to fixed rate loans or foreclosure of loans, transparent disclosure of various charges incidental to the exercise of these options, and proper communication of key information to the borrowers.

The RBI will issue detailed guidelines in this regard soon.

Borrowers to benefit

The RBI’s decision to bring a framework for fixing EMIs will positively impact borrowers.

“The emphasis on responsible lending through increased transparency in interest rate resets for EMIs tied to floating interest loans is a welcome move. This initiative holds potential to significantly benefit borrowers by fostering a clearer understanding of their loan repayment terms,” Atul Monga, CEO and Co-founder, BASIC Home Loan, told FE Money.

“Transparent interest rate resets ensure that borrowers are informed about changes in their EMIs, promoting better financial planning and reducing the risk of payment shocks. This move can enhance trust between lenders and borrowers, ultimately contributing to a more stable lending ecosystem,” he added.

However, the expert says that financial institutions might need to adapt their systems and communication strategies to accommodate this increased transparency effectively.

“Overall, this step aligns with consumer protection and prudent lending practices, potentially leading to a more informed and empowered borrowing experience,” said Monga.