Ease the load: Lower down payment for higher Loan-to-Value (LTV)

One of the major hiccups new home buyers experience is the lack of funds to form a sufficient down payment on their dream home. However, this may no longer be the case if the Reserve Bank of India’s latest plan,to allow home loan providers the option to breach its loan-to-value ceiling, is carried forward. The RBI’s planallows this flexibility to home loan providers if the borrower is able to back up the loan with a mortgage. If this is put into effect, lenders will be able to provide loans of higher amounts against a property.

This will mean that the home buyer would need to put down a much lower down payment at the time of availing credit. This, in turnwill also lead to a higher loan off-take and also a boost in the Indian real estate market. Currently, the RBI has three categories for their LTV ceilings. Property of up to 30 lakhs has a ceiling of 90%, property between 30 lakhs and 75 lakhs has an LTV ceiling of 80% and any property above 75 lakhs has a ceiling of 75%.

A mortgage guarantee would mean that if the loan becomes a non-performing asset, the India Mortgage Guarantee Corporation (IMGC) steps in and provides 10%-35% cover for the entire loan. A mortgage guarantee will result in home loan lenders achieving a higher degree of business as they are able to provide larger loan amounts for their customers, thereby aiding mortgage penetration across the country.

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