Rise In Down Payments | Home Loans

Real estate market is expected to show decrease in property rates and due to this lenders have increased or are planning to increase the down payment (the borrowers share in the actual cost of a house).

Studying the trend of Banks, it was revealed that some finance up to 90-95% of the property purchase value while the conservative banks sanction 85-90%. But a survey conducted recently showed that banks are now starting to increase this margin, in other words borrowers will have to spend more for their dream house.

Margin is the figure a bank keeps between the actual value of the property and the loan sanctioned. Bank never loans the full purchase value of the property to protect itself, in case the said value turns out to be wrong or falls considerably. Higher margins ensure minimal losses for the lenders as banks recover defaulters’ payments by auctioning the borrowers’ property. But, when the property’s price of a property reduces lower than the unpaid amount, the bank might suffer losses even by auctioning ! This is why Kotak Mahindra Banks keeps their LTV’s (loan to value) bellow current average of 75-80% for home loans. Axis Bank maintains 75-85%. Usually lenders sanction 85% of actual value as loan.

ICICI Home Finance has been sanctioning loans up to 85% of the purchase value for the past two years. But in these changing times to secure their interest they may increase the margin levels which means higher down payment for each home loan seeker.

Study reveals that there was a time when banks financed 115% of the house value and also fund furnishings too but in the near future this figure is going to be about 85% or less. It is obvious that higher rate of finance would be given to borrowers with good track records while others might have to save more, that is provide more down payment to buy their dream house.

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Rise In Down Payments | Home Loans

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