To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A will appear every other Monday.
I am 25 years old, have been working with a multinational company for the last six months, and have been drawing a gross monthly salary of Rs75,000. I have shortlisted a property of around Rs45 lakh and have approached a lending institution for a loan. The lender has approved 85% of the property value as the loan amount (including stamp duty). However, since I have just begun earning, I am finding it difficult to manage the downpayment of the balance 15%, which worked out to around Rs7 lakh. Why do lenders insist on this?
You will agree that the lender has to have sufficient security against the loan it is providing. The general industry norm is that up to 85% of the property value is financed and the balance has to come from the borrower. This is to ensure that in the event of a correction in property prices, the borrower continues to have sufficient interest in the property to service the loan and at no stage is the value of the property lower than or insufficient with regard to the outstanding loan amount. Hence, it is important that one contributes at least 15% while buying the property.
I took a home loan of Rs5.25 lakh for 15 years from a lending institution at the fixed rate of 12.5% in October 2006. Can I switch to a floating rate loan now? If so, how will it benefit me?
Yes, some institutions allow you to move to a floating rate loan by paying a one-time conversion charge that will help you get the benefit of floating rates, which today are priced substantially lower than fixed rates. Also, you could benefit from future reductions in the prime lending rate. However, here’s a note of caution: if the prime lending rate goes up, you will have to pay a higher rate of interest.
Renu Sud Karnad is joint managing director, HDFC.
Readers may write in with their queries and comments to firstname.lastname@example.org