Home loan borrowers to pay higher down payment on loans

Banks are increasing their financing margins. Financing margin is the percentage of property value that a borrower has to pay. Now the home loan borrowers have to make a higher down payment on loans.

Punjab National Bank, Union Bank of India and Indian Bank has already increased their financing margins.

Now Punjab National Bank is financing up to 75 per cent of the cost of construction or the purchase value of a property as compared to 85 per cent earlier.

Earlier Union Bank was financing 85 per cent of the property cost now the bank will finance 80 per cent which means increase in its margin requirement for home loans to 20 per cent from 15 per cent.

While Indian Bank will be financing up to 80 per cent for all fresh sanctions of housing loans of above Rs 20 lakh from April this year.

S. Govindan, deputy-general manager of Union Bank said, “Our cost of capital has increased substantially in the past couple of years. We have to increase the margin requirement because then we can offer home loans below Rs 20 lakh at less than 10 per cent interest rate”.

However the increased margin requirement by banks has been, balanced by lower lending rates of between 9 per cent and 9.75 per cent for home loans of less than Rs 20 lakh for up to 20 years.

In fact Banks who are still financing up to 85 per cent are charging a higher interest rate of between 10 per cent and 11.25 per cent for loans below Rs 20 lakh. Though, customers can bargain for lower interest rates if they opt for greater down payments.

The SBI is giving a 0.15 per cent discount on the interest rate to the borrowers who are paying 25 per cent, instead of 15 per cent, of the purchase price of the property. Or else the bank charges between 10 per cent and 10.50 per cent floating interest rate for loans below Rs 20 lakh.

“Banks are already charging 25 to 75 basis points (100 basis points is equal to one percentage point) more for loans above Rs 20 lakh and the minimum margin requirement is also higher at 25 per cent for these loans. For loans of less than Rs 20 lakh, borrowers should be ready to pay more upfront to get a lower interest rate,” said a public sector bank official.