Home loan downpayments demystified

The Reserve Bank of India (RBI) this month announced a few regulations to tame banks’ unconstrained housing loan policies.
This includes a regulatory ceiling on the loan-to-value (LTV) ratio
of home loans and a hike in the risk weightage for loans above Ra75 lakh to 125%.

"Asset prices in India, as in many other emerging market economies, have risen sharply in a short time, which is a cause for concern,” said RBI governor D Subbarao at a press conference.

LTV is a terminology that is used exclusively with home loans. It stands for the ratio of the market value of an asset (as per the bank’s assessment) to the value of the loan taken against it. For example, if your loan is for Rs80 lakh for a property that costs Rs1 crore, your LTV is 80%.

For loans taken against construction of houses, or ongoing projects, the responsibility to ensure that the construction is being carried out in accordance with the sanctioned building plan lies with the bank. The RBI has also made strict directives to all banks to check that housing loans are being sought for authorised structures only

If you are now thinking about ways to best manage your downpayments, here are a few inputs:

Savings, tax refunds, bonuses, fixed deposits, shares etc are of course, golden options to meet your money requirements. Those who are looking for a home in future, should start saving now

Regular savings can build up a sizable downpayment amount. For immediate requirements, depend on near ones or go in for a personal loan. But beware of personal loans with higher interest rates

Here are some other options which you can look into:

Gold loan: If you have gold, taking a gold loan is always better than a personal loan. The process is also simpler. Diminishing interest rates start from 1% per month, and you need to pay the interest only for the number of days your pledge is maintained.

Collateral securities: Many banks have schemes to include pledge of additional property, fixed deposits and insurance policies to a loan, to enhance the loan amount.

For instance, if you are purchasing an apartment for Rs45 lakh, you may need to pay Rs9 lakh (20% of Rs45 lakh) as downpayment. If you attach some other property owned by you or by your spouse (if he/ she is a co-applicant), you can borrow more under the collateral security or with a loan-against-property scheme of the same bank. Additional amount availed can be used for making the downpayment.