Can I Buy a House by Taking a Gold Loan?
Last Updated : Aug. 12, 2020, 8:30 p.m.
Buying a home remains a challenge for many despite the emergence of attractive home loan schemes. The reason being the home loan is not financed 100%; you need to pay around 10%-25% of the property cost, which means the loan is given upto 75%-90%. Not only that, you also need to pay stamp duty and property registration charges. The part not financed by a home loan can be significant, and you require some means to pay those. Among the options you have to pay the unfinanced part, a gold loan is also there. But will it be sufficient for you to buy a home? Let’s find out here!
The Utility of a Gold Loan in Home Purchase
As per the latest guideline from the Reserve Bank of India (RBI), banks can lend gold loans upto 90% of the value of gold ornaments till March 31, 2021. On average, the gold loan amount can account for around 65%-75% of the value of the yellow metal. Given the massive property cost, a gold loan alone can’t help you buy a home even if you have massive gold reserves with you. If you talk about the property cost, it is around INR 30-60 lakh on average across cities. Whereas, the maximum repayment tenure in a gold loan can be a maximum of 2 to 3 years. With such a shorter repayment tenure, the EMI amount will most likely be out of your reach, resulting in the obvious i.e. a loan default and the loss of gold ownership.
But like we said in the beginning, a gold loan can help you get the part not financed by home loans. The fulfillment of the home objective with a gold loan will depend on the current value of gold ornaments . As of now, gold prices have inched past INR 50,000 per 10 gram (Gold prices change daily based on various economic factors). So, check how much gold you have and ascertain the loan amount you could get from the lender. In case you have 200 gm of gold with you, the value of the possessed metal as per the current rates can be around INR 10,00,000. The maximum loan amount, in this case, can be INR 9,00,000.
But will it be advisable to go for such a massive loan amount when you know a home loan obligation awaits you? Maybe not! As this is a home purchase, you must have saved something at your end. Use it to reduce the gold loan payment obligations.
What is the Loan to Value Ratio in a Home Loan?
Above, we pointed out that the home loan is not financed fully. The below table will help us establish that point.
| Loan Amount | Loan-to-value Ratio |
|---|---|
| Upto INR 30 lakh | 90% of the Property Value |
| INR 30 lakh to INR 75 lakh | 80% of the Property Value |
| Above 75 lakh | 75% of the Property Value |
Note – The Loan to Value Ratio can vary from one lender to another.
The loan amount will also depend on your income and existing obligations, if any, besides the property cost. Since you will take a gold loan, its EMI amount will be considered to assess your home loan eligibility . Usually, lenders feel comfortable lending home loan amounts that keep the EMI and existing obligations to around 50% of your net monthly income. If you take a gold loan of INR 4 lakh for 3 years at 10% per annum, the EMI on it will be INR 12,907. In case you are earning INR 75,000, you have the EMI space of another INR 25,000. If you take a home loan of INR 35 lakh for 20 years at an interest rate of 7.50% per annum, the EMI will be INR 28,196. The total obligation in this case will be INR 41,103, which is more than 50% of your net monthly income. The lender may allow it as the Fixed Obligation to Income Ratio (FOIR) can vary based on different income levels. In case it does not agree, extend your tenure by some years to reduce the EMI and keep the FOIR that the lender wants.
Where Should You Approach for a Gold Loan?
Gold loans are provided by both banks and non-banking finance companies (NBFCs) at varied interest rates. Check out the table below to know the gold loan offers for you.
| Lenders | Interest Rate (In Per Annum) | Max. Loan Quantum | Max. Tenure | Processing Fee |
|---|---|---|---|---|
| State Bank of India (SBI) | 7.50% | INR 20 Lakh, upto 65%-75% of the value of gold ornaments | 1-3 Years | 0.50% of the loan amount |
| Muthoot Finance | 12.00% - 27.00% | No maximum limit | 1 Year | Upto 1% of the loan amount |
| Manappuram Finance | 12.00% - 29.00% | Upto 1.5 Crore | 3 Months | As applicable |
| Bank of Baroda | 7.45% - 8.20% | Upto INR 25 Lakh | 1 Year | 0.50% of the loan amount, subject to a maximum of INR 3,500 |
| ICICI Bank | 10.00% - 19.76% | Upto INR 15 Lakh | 1 Year | 1% of the loan amount |
| HDFC Bank | 9.50% - 17.55% | From 10,000 onward | 2 Years | 1.50% of the loan amount |
| Axis Bank | 13.00% | Upto INR 20 Lakh | 3 Years | 1% of the loan amount |
| Kotak Mahindra Bank | 10.50% - 17.00% | Upto 65%-75% of the value of gold ornaments | 4 Years | Upto 2% of the loan amount |
How to Apply for a Gold Loan?
Just visit the nearest branch of the lender with your gold ornaments and KYC documents. The lender will take over the ornaments from you and evaluate their value using its in-house method. After KYC and gold authentication, the gold loan will be disbursed to your account instantly.
Where Should You Apply for a Home Loan?
As the home loan runs for as long as 30 years, you should choose the lender that offers the lowest rate so that the interest outgo can be curtailed greatly. We have a list of lenders where you can think of applying.
| Lenders | Interest Rate (In Per Annum) |
|---|---|
| State Bank of India (SBI) | 9.15% - 11.30% |
| HDFC Limited | 8.50% - 9.40% |
| ICICI Bank | 9.00% - 10.05% |
| LIC Housing Finance (LIC HFL) | 8.50% - 10.75% |
| Bank of Baroda | 8.50% - 10.60% |
| Axis Bank | 8.75% - 9.15% |
How to Apply for a Home Loan?
You can apply for the home loan online or at the branch of the lender. Irrespective of the route you choose, you will need to fill the home loan application form as well as your KYC and income documents. Besides these, you will also need to submit property documents such as the agreement of sale, sale deed, property map, etc. The lender will carry out legal and technical verifications from qualified professionals before sanctioning a loan. After these are done successfully, you are allowed to go ahead with the property registration process at the local registrar office. Once all that is done, the lender will issue a cheque of the requested loan amount to the seller of the property. In return, you will need to pay the home loan EMIs for the tenure you choose.