How to arrange the down payment amount for home loan

Buying a property and funding it through a home loan requires a good amount of planning from a financial perspective as it is a major financial commitment.

Financing a property purchase through a home loan has many benefits. Therefore, sound financial planning is needed to reap all the benefits available. Interest rates have gone up across the board over the last couple of quarters as a result of the monetary policy tightening moves by the Reserve Bank of India (RBI). Also, the RBI has recently increased the weightage on medium and big ticket home loans (loans above Rs 20 lakhs) by increasing the limit of margin money requirement. The RBI has increased the margin money requirement in order to impose a check on liberal financing of homes.

Borrowers are now required to pay margin money of at least 20 % of the value of the property, which was earlier between 10 and 15 %. This means a borrower will have to arrange funds equal to 20 to 25 per cent of the property’s value at the time of availing the home loan on his own.

Liquidating savings is an easy way that comes to mind when trying to put together a large sum of money. One should try to collect as much money as possible by liquidating savings.

However, it is important to keep some savings for contingencies and not exhaust the complete reserve.

Loans on Savings – Sometimes, it is not wise to liquidate savings due to certain reasons like prematurity charges, higher returns expectations in future etc. In such circumstances, taking a loan on the savings can be another way to arrange the funds needed.

However, the quantum of money you can arrange this way is lower as a loan available against savings instruments varies between 50 and 75 % of the value of the instruments.

Also, the interest rate charged on a loan against savings instruments is higher than the returns on the instruments. Therefore, one should take a decision cautiously on liquidating savings or taking a loan against savings instruments.

Many employers offer soft loans to their employees. One can look at this option for a part of the funds.

It comes at low cost with respect to other soft loans due to zero or reduced rate of interest.

However, on the other hand, taking loan from the employer will result in a drop in monthly take-home income and needs to be planned accordingly.

Some banks offer soft loans or top-up loans to bridge the gap and reduce the margin money requirement.

However, these top-up arrangements come at much higher interest rates and borrowers should be careful while going in for them.

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