RBI to simplify floating-to-fixed rate conversion for loan borrowers
The Reserve Bank of India (RBI) plans to introduce a simpler and more transparent framework to allow borrowers to switch from floating to fixed interest rates. This will provide relief for those struggling with high rates on home, auto, and other loans. The comprehensive framework will require lenders to communicate clearly with borrowers about resetting loan tenors and equated monthly installments of floating-rate loans.
New rules promote transparency and communication
Currently, borrowers can switch between floating and fixed rates but may face a conversion fee between 0.5% to 2% of the loan amount. The new framework will be focused on making it easier for borrowers. It will mandate options for switching to fixed-rate loans or prematurely closing loans. Lenders must also disclose associated charges and effectively communicate crucial information.
Fixed rates make it easier to plan ahead
Floating interest rates change with market conditions, while fixed rates do not during the loan's tenure. Floating rates are dependent on base rates, which is reflected in rate revisions when the RBI changes the repo rate. Fixed interest rates offer stability and easier budget planning. Floating rates, on the other hand, can generate savings but are subject to market fluctuations.
