Extension of housing loan tenure needs approval from banks

The Royal Monetary Authority (RMA) on 8 September announced the extension of loan term for commercial housing loan and home loan from 20 years to maximum period of 30 years, excluding the gestation period.

The RMA directive would serve to reduce the monthly installments of the loan for the building owners so that they could waive off some percentage of rent for the tenants, particularly those affected by the pandemic.

RMA’s move is to protect a looming threat to the housing sector from the pandemic. It accounts for 26 percent of the total loan portfolio of Nu 174.92 bn as of June 2021.

An official from a bank said that it is up to the borrower, whether to extend the loan term or not. The bank has the authority to either approve the extension or not, and typically a meeting has to be held in order get an approval for the extension request.

Lotay Jamtsho and Kezang Chimi own a building in Babesa. The pandemic has not affected their business much, and they are confident to be able to pay the loan within the loan term, which is 25 years.

Regardless of whether they actually need to extension on the loan or not, they were happy with such a directive, as it will help those who are less fortunate or affected by the pandemic.

“We are not sure if we can actually pay the loan within the stipulated time as we have a hard time since some apartments remain vacant,” said a landlord in Changzamtog, and further added, “ So this directive actually works in our favour.”

The maximum loan to value ratio (LTV) for commercial housing loan was enhanced from 70 to 80 percent for loan amount up to Nu 50 mn, and from 60 to 70 percent for loan amount more than Nu 50 mn. The maximum loan to value ratio for home loan is enhanced from 80 percent to 90 percent.

LTV is the ratio of loan amount to the appraised value of the mortgage.

To encourage banks to finance home loans, the risk weight for home loans, which are overdue by 90 days and less, is relaxed from 100 to 50 percent.

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