Home Loan Down Payment

The down payment you make plays a crucial role in determining the terms of your home loan. It has a direct impact on the loan amount offered to you. For example, if you pay about 30% of the property’s value as a down payment, you can get a home loan for the remaining 70%. Furthermore, the interest rate is charged only on the amount borrowed. This affects your EMIs and total repayment costs.

According to the RBI, banks and NBFCs in India can only provide up to 75% of the property value as a home loan for loans above ₹75 Lakhs. The rest should be funded by the borrowers themselves as a down payment. If the loan amount falls between ₹30 Lakhs and ₹75 Lakhs, the individual can borrow up to 80% of the property value. 

For an amount lower than ₹30 Lakhs, the lenders may provide up to 90% of the property value. In such cases, the borrower is required to pay the remaining 10% as a down payment. Thus, as the property value increases, the home loan down payment percentage also increases.

Generally, lenders give you options to pay a minimum amount as a down payment. But, you can also opt for a larger amount, if you can afford it. 

Let us take a look at the pros of making larger down payments:

• Lowers the overall loan amount, which could fetch you a lower interest rate. This is subject to the lender's policies  

• Ensures you own the property’s larger equity. This lowers your dependence on borrowed funds.

• Increases the chances of a faster loan approval

• Enables you to enjoy potential discounts in processing fees and home loan insurance premiums. These are usually offered by lenders as additional perks to borrowers who make high down payments.

Here are some reasons why you should consider opting for a minimal down payment:

• You can tackle any emergency that may arise with the amount you save on a down payment

• You have the option to allocate the saved amount towards various investment opportunities

• As the principal and interest amount of your home loan increases with a minimal down payment, you can enjoy greater tax benefits

• Making a minimal down payment leaves you with more funds for repairs, renovation, interior decor, etc.

In order to make a down payment, it is important to plan your finances well in advance. Here are some tips to help you make a down payment without straining your finances.

• Start Early

The most practical and safe way to accumulate funds for your home loan down payment is to start saving money well in advance. Initially, you could start by investing your savings in high-return investments. Later, transfer the gains to a safer investment option like fixed deposits. Ensure to always maintain a budget and keep your expenses on track.

• Utilise Investments

Investments like FD and mutual funds can be used to fund the down payment of a house. If you fall short of the amount for the down payment, you can withdraw a part of the investment. Or else, you can get a secured loan against these investments. 

• ‘Proportionate Release’ Option

Some lenders offer this option for new construction projects promoted by select developers. Herein, you can pay the down payment in small amounts over time instead of making a lump-sum payment. Thus, you can pay your down payment in instalments as the construction of a property may take a few years. Accordingly, the lender releases your home loan disbursements.

Whether opting for a larger or minimal down payment, ensure it aligns with your financial stability and requirements.