Now, your home loans may be cheaper if you make a larger down payment

Updated : October 09, 2020 11:57 AM IST

The Reserve Bank of India has rationalised risk weights -- or the capital that banks put aside after lending -- for all housing loans, in a move that could nudge lenders into extending more credit as well as bring down home loan rates for some buyers.

"Recognising the criticality of real estate sector in the economic recovery... it has been decided... to link risk weights only with loan-to-value ratios for all new housing loans sanctioned up to March 31, 2022. Such loans shall attract a risk weight of 35 percent where LTV is less than or equal to 80 percent, and a risk weight of 50 percent where LTV is more than 80 per cent but less than or equal to 90 percent," the RBI today said after announcing the monetary policy.

Put simply, if an individual puts more than 20 percent of a house's value as down payment, the bank will have to keep aside a lower amount of money for extending the loan.

This will also allow banks to offer cheaper home loans, bankers said.

Previously, risk weights on home loans were linked to both on the LTV ratio as well as the size of the loan.

Besides, the risk weights previously were applicable to only low value loans -- those below Rs 75 lakh -- HDFC Vice Chairman and CEO Keki Mistry said.

"This is the right policy. The risk on a home loan is linked to the amount of equity than an individual puts in a property not the size of the loan," Mistry said.

"This makes housing loans safer. The safer the loan we do, the lesser capital we assign to it," he added.

Mistry added that the rule change will help loans for higher value home loans.

Mallikarjuna Rao, MD and CEO of PNB, said that the removal of risk weights to size of a loan will nudge banks into making more bigger home loans.

"This will help us lend to the higher segment," he said.

Now, your home loans may be cheaper if you make a larger down payment

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