Money & Banking

Edelweiss plans home loan product without down payment

K. Ram Kumar Mumbai | Updated on November 12, 2017 Published on September 28, 2011

Imagine getting the full value of a property as home loan without having to liquidate your lifetime savings for the down payment.

Edelweiss Housing Finance Ltd, one of the latest entrants in the housing finance space, is looking to introduce such a home loan product.

How will this product work?

If you want to buy a property worth Rs one crore, then instead of liquidating your investments to make the down payment of Rs 20 lakh you can give your investment in shares and mutual funds worth, say, Rs 25-30 lakh as collateral to the lender. The lender will carve out a margin out of this investment portfolio and lend you up to 100 per cent of the value of the property.

“The plain-vanilla home loan ends up destroying one asset to create another. The product that we are envisaging will give the borrower the ability to preserve whatever savings he has and also enjoy the appreciation on that,” said Mr Anil Kothuri, Executive Vice-President, Edelweiss Housing Finance.

“This has worked overseas and there is no reason why it will not work in India. We will approach the housing finance regulator for permission to launch the product.”

Currently, a property buyer has to fork out 20 per cent of the value of a property as own equity to get a home loan. In most of the cases, borrowers' savings get wiped out to fund the equity.

“For somebody who invests in shares and mutual funds, the product that we are proposing to launch will be attractive as it preserves his savings, gets him a higher loan, and interest can be set-off for tax to some extent,” said Mr Kothuri.

“Wherever you buy an asset in the country, it appreciates, by and large, over a longish time frame. With passage of time what will happen is that the home loan instalment stays constant, the stocks appreciate, and the property appreciates.”

If the value of a borrower's investment portfolio depreciates then the lender could call for topping-up the portfolio, he added.

Edelweiss Housing Finance, which started its operations last September, currently has an outstanding loan portfolio of about Rs 350 crore. The portfolio is equally divided between home loans and loans against property. By March-end 2012, it plans to grow its portfolio to around Rs 850 crore.

Published on September 28, 2011
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