When you go about buying a ₹1 crore home, it involves more than just arranging the purchase price. This is because the down payment an individual makes directly influences the size of the home loan, the monthly EMI, and eventually the total interest outgoings.
Though a higher down payment can meaningfully reduce borrowing costs, putting too much of the available liquid cash into the property can leave a household with limited financial flexibility and liquidity.
This calls for proper financial planning and understanding of the basics before proceeding with such a decision. Here we take a look at these downpayment-related challenges and associated aspects in detail.
Why 20% down payment can be a practical starting point
Atul Monga, Co-Founder & CEO, BASIC Home Loan, explained, "For a ₹1 crore home, buyers should ideally plan for a down payment of around 20%, which would be approximately ₹20 lakh. While a lower upfront contribution may make the purchase seem more accessible, it also means taking on a higher loan amount and, consequently, a greater EMI and interest burden over the loan tenure.”
“At the same time, buyers should not exhaust their entire savings for the down payment. It is important to maintain an adequate emergency fund and to account for additional costs such as registration and interior work. The objective should be to keep the home loan affordable without compromising financial flexibility," he added.
So ₹20 lakh may serve as a reasonable starting point, but the right amount depends on the buyer's income, savings and existing financial commitments. There cannot be a fixed rule for everyone, as the needs, aspirations, and financial realities of different people are distinct.
Higher down payment vs liquidity: What should buyers choose?
The eventual decision comes down to aiming for an amicable balance between down payment and liquidity.
Kapil Makhija, COO, MinEMI, touched on this aspect. "The down payment decision has two goals that pull against each other. One, save interest paid to the bank. Two, avoid handing all the family's savings to the purchase. We suggest balancing both. For a one crore home loan at 7.3% over 20 years, 20 lakh down means an EMI of about 63,600 and total interest of about 73 lakh. At 40 lakh down, the EMI is about 47,700, and the interest is roughly 55 lakh. The extra 20 lakh saves nearly 18 lakh," Makhija pointed out.
"The balance comes from prepayment. Floating-rate home loans carry no prepayment penalty, so start with the smaller down payment, hold the rest as a buffer, and prepay over the next two or three years. The interest still gets saved, and the family stays liquid," he added.
The ideal down payment is not simply the highest possible amount a homebuyer can afford. It should strike a balance between lower borrowing costs and sufficient financial flexibility.
Keeping these fundamentals in mind, buyers should analyse their emergency corpus, current financial situation, family responsibilities, long-term economic objectives, and additional home-buying expenses before deciding how much to put up front.
Finally, if you have doubts, it is prudent to consult a certified financial advisor to plan your home loan EMI and down payment in a way that best suits your current financial situation.
