rakesh2306

Hello Everyone,

Happy New Year!!!

I will really appreciate if the experts can share thier views on the Pros and Cons of purchasing flats with downpayment mode.

thanks,
Rakesh

wiseman

Rakesh,

Downpayment as opposed to what? 100% loan?

Or are you wondering whether a higher downpayment is better than a lower one?

In general, unless you are an investment genius who also has a healthy cashflow, thereby keeping your money earning more than the interest banks charge you for loans, its always better to pay down as much as possible, since this also provides you with a healthy equity in your asset as well as reduces the time taken to finally call it your own, free of encumberances.

Too high a leverage can get you into trouble down the line, just in case you get into a short-term negative cashflow situation. High leverage (which is what happens when your downpayment is low or zero) generally goes hand-in-hand with low savings and surplus. And when your cashflow for some reason goes negative (say salary decrease, jobloss, 2-earning to 1-earning member, increased spending due to emergencies or additions to family, ...), you will not have room to maneuvre to keep your asset safe, especially in times like this when market price is probably less than your outstanding loan amount and liquidity is also very low. You are well and truly stuck!!!

If you see the smart financial communities in this country (and the modern banker in an MNC bank is NOT what I'm talking about) they always lend at high rates of interest and generally never borrow, preferring to buy all their assets with full downpayment. In addition, when it comes to financial decisions, they have a lot of patience and wait till they strike real bargains, preferring to stay at a lower level of lifestyle till the bargain comes along. And in general, they are rich and get richer.

There must be a reason for this, right?

Take the example of a deep depreciating asset like a car. A Skoda Octavia of 2005 vintage with 50k kms on the odometer today comes at a steep discount of 55% costing 5.5L while a new one probably costs 12L (even though Skodas are known to routinely run 900k kms over 20 years and still be in good condition in other countries with harsher climates; so this is a real bargain due to current circumstances). Such opportunities are what the smart money guys wait for and lap them up when they come along, meanwhile driving around in their Maruti 800s! Sometimes, these also happen in RE!

cheers

pramad

The answer of this question is totally depend on if you are salaried or not...i am salaried so i know suggestion based on that fact only.

Venkytalks

Rakesh, downpayment gets you 15% discount. But you pay 100% upfront.

If you go for CLP, you pay 30-40% upfront. Rest 60% remains with you for 3 years. At 8% interest, you make around 15% returns fro your capital anyway.

For own money, use CLP. For bank loan, use downpayment plan and avail discount.

thatsme

Hi Venky,

What do you suggest in case where theres a mix - some amount of own money say 50% and the rest to be taken as loan...considering the typical CLP plan where the builder anyway collects the rest 60% during the construction of the building - the payment are tied up with casting of earmarked floor slabs.

Although there are better payment plans where, as you said, you pay only 30-40% upfront and not pay anything till the possession.

Thanks.

search2010

It is always better to go for CLP/Flexi Plan instead of Down Payment as it is very safe for health of project. 10% or 12% discount which you are getting in Down Payment(DP) will be equal to interest portion you are paying to bank during construction of flat. In DP if construction is delayed you will still keep paying EMI which will have major portion as interest but in CLP plan, if project is delayed, you will not pay installment so will save money. Just make a simple excel sheet and compare both by putting rate of interest you are paying vs DP discount you are getting. Now make 2-3 case by assuming that project will be delayed by 6,9 or 12 months and you will find the difference.

Only case when you should go for DP is when you are making a big portion of total cost from your own source and not taking loan. For example, total cost is 40 Lakh and you can pay 25 Lakh from your pocket so in this case you can go for DP plan as putting this 25 Lakh in bank will give you 6-6.5% return however by taking loan, you will pay 8.5%. Other than this case, it is always better to go for CLP.

chandra2034

if you find out details of people who paying Down payment, more than 50% using black money as they have to park money some where.

itsrajesh

Very well put. I have a question. What is difference bewteen Flexi CLP and CLP. I see bigger discount in flexi CLP than CLP. Thanks.

rakesh2306

Guys,

Thanks a lot for your suggestions. The crux is it depends on how much of the total amount I want put from my pocket. If I am not taking any loan I should go with the DP option as oppossed to CLP or FP.

thanks again...
Rakesh

Venkytalks

Flexi plan is not a CLP. You sign for the full amount with bank and you are liable for full amount to bank. Disbursement will occur regardless of construction.

No PSU bank agrees to this scheme, or for full downpayment, which I agree is only done by black money guys (because they cannot put the money in bank and earn interest like decent people)

Some private banks only give money in flexi and full downpayment. Because your salary is OK and bank knows it can recover from you.

Bank loan agent cares only for his commission and not what is good for you. He will get commission for flexi and full downpayment plan from builder also, in addition to bank.