With the expansion of housing finance across income segments, more families have begun leveraging their property as collateral to gain access to credit. Though it can be an empowering step—unlocking lower interest rates and longer repayment tenures—it also carries one of the greatest financial risks: If repayments falter, the very home pledged as security can be repossessed.
Safeguarding your property in such situations requires more than optimism—it demands financial discipline, regulatory awareness, and careful planning.
The cushion of loan-to-value caps
The Reserve Bank of India (RBI) has long recognized that over-leveraging against property can be dangerous. To mitigate this, it enforces strict loan-to-value (LTV) caps.
Banks can lend up to 90% of the property value for loans of ₹30 lakh or less, 80% for loans between ₹30 lakh and ₹75 lakh, and 75% for loans above ₹75 lakh. Stamp duty and registration costs are excluded from this calculation, except for low-value units below ₹10 lakh.
This ensures borrowers always contribute equity, creating a crucial safety buffer. In practical terms, this means that if your home is worth ₹50 lakh, you can expect financing of about ₹40 lakh at most, with the remainder to be paid as a down payment. While this can feel burdensome for first-time buyers, the design is intentional: It prevents households from falling into the trap of excessive debt if property values stagnate or incomes decline.
Interest rates and the benchmark shift
Another critical factor in home financing is the cost of borrowing. Since October 2019, all new floating-rate loans in the country have been linked to an external benchmark, typically the RBI repo rate. This ensures that monetary policy changes directly affect borrowers. As of August 2025, the repo rate stands at 5.50%, and large public sector banks are offering home loan rates starting from around 7.5% per annum.
Fixed-rate loans provide predictability but often come at a premium, while floating rates may be cheaper but rise in line with policy changes. For borrowers, this means budgeting must include not just today’s EMI but also potential increases if rates climb. Stress-testing affordability for a one- to two-percentage-point increase is a prudent safeguard.
Reading the fine print
Home loan agreements are notoriously complex. Yet, hidden within their clauses are details that can significantly impact a borrower’s financial future. Reset frequencies on floating loans, spreads over the benchmark, conversion fees for switching schemes, and penalties for a delayed payment all warrant close attention.
The RBI has also discouraged risky “upfront disbursal” schemes in under-construction projects, urging banks to stick to stage-linked disbursement to protect borrowers from builder defaults.
Unfortunately, many households treat the loan agreement as routine paperwork. A more responsible approach is to review it carefully, and if necessary, seek legal advice. A one-time consultation fee is far cheaper than years of regret.
Borrowing within means
While banks use eligibility criteria such as age, income stability, and credit score, the ultimate responsibility rests with the borrower. Financial planners recommend keeping EMIs within 30–40% of monthly income. Crossing this threshold can lead to lifestyle compromises and vulnerability to even small disruptions in cash flow.
A healthy credit score (750+) not only improves the chances of loan approval but also helps secure more favourable terms. Equally important, since 2012, the RBI has barred banks from charging prepayment penalties on floating-rate loans, allowing borrowers to prepay or refinance without cost. This flexibility can significantly reduce interest outgo over time.
Insurance: The most overlooked shield
Despite housing’s central role in Indian households, insurance penetration remains alarmingly low. Estimates suggest that fewer than 3% of Indian homes are insured. This is a glaring gap given the rising incidence of natural disasters, fires, and thefts. Comprehensive home insurance should be treated as essential. Borrowers should also consider pairing it with term life insurance equivalent to the outstanding loan, ensuring the family is protected in case of an unforeseen tragedy.
Maintenance and valuation
Collateral is only as strong as its condition. Neglected properties lose market value, reducing their attractiveness as security for refinancing or top-up loans. Routine maintenance—whether fixing seepage, repairing wiring, or upgrading safety systems—helps preserve not just comfort but also the property’s financial worth. For lenders, it signals responsible ownership, which can ease negotiations in times of stress.
Preparing for uncertainty
The past decade has shown how quickly external shocks—whether a pandemic, job loss, or business downturn—can derail household finances. To cushion against such risks, financial advisers recommend maintaining an emergency fund equal to three to six months of EMIs. This buffer can prevent temporary setbacks from spiralling into default.
It is equally important to understand the foreclosure process. Under the SARFAESI Act, 2002, banks can issue a 60-day notice if a loan remains unpaid, after which they are legally empowered to take possession of and auction the property. Engaging with the lender early, whether to restructure the loan or request a moratorium, can often prevent matters from reaching this stage. Silence, on the other hand, only accelerates the path to foreclosure.
The lesson is clear: your home should empower you, not imperil you. By approaching a home loan with caution, foresight, and discipline, families can ensure that their most cherished asset remains what it was always meant to be—a foundation of security, not a source of vulnerability.
Anuj Sharma is the chief operations officer of India Mortgage Guarantee Corp.
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