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Ipsa Rai | 14 Mar 2023

Down Payment For Home Loan: Tips, Benefits, How To Calculate

Down Payment For Home Loan: Tips, Benefits, How To Calculate

Table of Content:

  1. Concept Of Down Payment In Home Loan
  2. ​Are Zero Down Payments Allowed In Home Loans?
  3. Down Payment Home Loan Calculator
  4. How Much Down Payment Should You Pay?
  5. Benefits Of Down Payment When Buying A Property

A down payment is the initial non-refundable payment made for a large-ticket item or service. To put it another way, it is money that is set aside as part of the first payment for a house, car or a costly piece of furniture. 

Down payment is expressed as a percentage of the asset’s total purchase price. The borrower is responsible for making an initial down payment, and this mode of payment may be utilised by banks, NBFCs, or private lenders to supply the remaining cash for the transaction. Also, sometimes when the banks offer to pay the entire value of the asset as a part of the loan, it is known as the zero(0) down payment.

Continue reading to learn more about the essential features and functionality of a down payment, as well as other information.

Concept Of Down Payment In Home Loan

Let's take a look at the concept of a down payment through the prism of the real estate industry. 

The part of the home's purchase price that the buyer pays in full with their own cash rather than obtaining financing from a bank or another financial institution is referred to as the down payment. It is important to note that the amount of the down payment is normally determined by the standards of the organisation. 

Nonetheless, borrowers with a high CIBIL score may be eligible for loans at select banks that require no initial payment or down payment. The Reserve Bank of India (RBI) is in charge of regulating credit reporting firms, and Credit Information Bureau India Ltd. (CIBIL) is one of those agencies.

Also Read: Tax Benefits & Interest Rates On Home Loan Top Up

Are Zero Down Payments Allowed In Home Loans?

The Reserve Bank of India (RBI) has made it clear that banks in India cannot offer home loans with 0 down payment.  They can lend only up to a certain limit on the purchase cost of a property. A home loan can cover as much as seventy-five to eighty percent of the purchase price, with the borrower responsible for the remaining twenty-five to twenty-eight percent in the form of a down payment.

Down Payment Home Loan Calculator

Let's imagine that Rita is required to make a down payment of 20% on the purchase of a home that costs Rs 50 lakh. This indicates that she can obtain a mortgage for up to Rs. 40 lakh, but she will be responsible for paying the remaining  amount of Rs. 10 lakh herself.

Once the customer's down payment on the house has been received and processed, their name will be included on the deed in a partial capacity. It is also evidence that you have the financial ability to repay the loan in the future. If you decide to make

Check Out:  Estimated Market Value Of Property & Estimate Your Home Loan 

How Much Down Payment Should You Pay?

The borrower and the lending financial institution will negotiate the amount of the down payment before the loan is issued. When you apply for a loan, the financial institution will go over all of your available choices, including the benefits of making a down payment on a house. 

A reduction in the loan interest rate of half a percent to one percent may be offered by the bank in exchange for a down payment of ten percent of the total loan amount. This is a popular strategy that banks usually adopt.

When determining the required down payment for the home, another important factor to take into account is the kind of loan that will be used. For certain loans, such as student and personal loans, a down payment requirement could not even be stipulated at all. 

Important factors that determine whether or not someone should take a loan, are the loan amount, the nature of the loan and the repayment period.

Keep Reading: Hidden Charges In A Home Loan

Benefits Of Down Payment When Buying A Property

To reduce the direct impact of the loan taken, it is advisable to pay a good percentage of the initial amount as the down payment when buying a property . 

In addition, there are a number of other advantages that can be obtained as a result of not making a low down payment, including the following:

  • If a higher down payment is made, it increases the likelihood that a loan will be authorised soon, and it also increases the likelihood that the interest rate will be low. If you borrow one lakh rupees and put down twenty percent of that, which comes to 20,000 rupees, the financial institution will probably offer you a better interest rate. 

  • It is one of the most effective ways to reduce the total amount of money spent on EMI payments. With a loan of one lakh with a duration of twelve months and an interest rate of 10%, the formula predicts that the monthly installment will be decreased to Rs 8,792 instead of Rs 10,000. On the other hand, if a down payment equal to twenty percent of the total amount is made, not only will the principal amount may be decreased, but the interest rate can also be fairly low.

  • You can reduce paying personal loan insurance by making a sizable down payment, which protects the bank against financial loss in the case of a loan default. 

Now that we have discussed the concept and benefits of down payment, it is also important to know that different financial institutions have different rules and regulations for down payments and the home loan. So, it is advisable to seek expert advice, read related articles and blogs and conduct primary research and comparisons before taking a decision in this regard. 

Suggested Read: What Is Clicworth Property Valuation Tool & How Does It Help?


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