09 December 2010
Why the Down Payment?
Home loans are easily available and at very attractive interest rates. Some institutions and nationalised banks offer loans at very low interest rates and flexible terms for repayment. Whatever the perks applied for home loans there is a certain amount to be paid by the buyer called down payment which is usually a big amount. What is the reason behind this figure?
Earlier many banks offered larger amounts as loans and it was very easy to purchase a property and then later keep paying the monthly EMIs. But due to property rise and inflation it is becoming difficult for the client to repay the loans. Unpredictable future and unexpected financial issues has made the banks vary of lending higher loan amounts. Many banks and private financial lending institutions would consider the background of the client and the past history of loan repayment and consider offering larger amounts as loan. But due to many defaulters and bad loans many nationalised banks have come to terms with this problem by sealing the percentage of loan amount to 20% of the total amount of the property or house.
The reason for this is certain amount of commitment from the customer. This down payment is not refunded and in case of default the client loses on this amount. Also this assures the bank that certain amount of the total property value has already been recovered. This is also good for the borrower as they have to repay a lesser amount and a certain percentage has already been taken care of before purchasing the home. This is a banks assurance and insurance that the client has made upon taking the home loan. In case of any problems in repayment the borrower has the fear of losing on this down payment as well as the property taken on loan.