RMA increases mortgage repayment term to 30 years

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Thukten Zangpo

The Royal Monetary Authority (RMA) has increased the repayment term for home loans (commercial and residential) from 20 to 30 years, excluding the maximum gestation period of three years.

This, according to RMA, is intended to promote home ownership, affordability and availability of housing, and further reduce the rent burden.

The Authority’s press release says RMA is aware that due to the continued impact of the pandemic on businesses, there is also an imminent threat to housing.

“An increase in the loan repayment term would reduce the equivalent monthly payment and we would expect homeowners to reduce house rents, however, this will also depend on homeowners,” an RMA official said.

The press release says that existing home loans, both commercial and residential, will also be eligible for the loan term extension.

For example, those who have used home loans for a period of 20 years and have been repaying for five years, they would get an additional period of 10 years. However, it depends on the borrower to extend or not.

For a Commercial Housing Loan (CHL) of up to Nu 50 million, the borrower will get a loan of up to 80 percent of the total collateral value (building and land). Previously, it was 70 percent.

For a loan amount of over 50 million Nu, one can qualify for a loan of up to 70 percent of the value of the collateral. Previously, it was 60 percent.

CHL is given for the purpose of construction, purchase of a house, building or apartment and also includes repair, with the aim of generating a profit, either from commercial activity, from the resale of the property or rental or rental income.

In addition, for a home loan, one can qualify for a loan of up to 90 percent of the total value of the collateral. It was 80 percent earlier.

Home loans are given for the purpose of building a personal house and also include repair, purchase of a house or apartment.

The RMA also relaxed the risk weight for home loans from 100% to 50% overdue by 90 days or less to encourage financial institutions to fund home loans. “The relaxation of the risk weight will help relieve the capital burden on mortgage loans which must be maintained under regulatory capital.”

However, there is no change in the different mortgage interest rates maintained by banks.

The housing sector accounted for 26% of the total loan portfolio of Nu 174.92 billion in June 2021.

Edited by Jigme Wangchuk


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