Smart Home Loan Strategies to Tackle Soaring Property Prices

With the Indian property market witnessing a significant surge in prices, buying a home is getting increasingly difficult day by day – particularly in India’s metro cities. Not only for the middle class, but even for those in higher income brackets. So, how should those looking to a buy a piece of residential property by taking a home loan go ahead with their plans?

Reasons for Price Rise

Real estate prices have gone up significantly over the last 18 to 24 months, making it harder to achieve the big dream of every Indian household—to have their own home and roof over their head. This rise in difficulty is largely due to how sharply real estate prices have increased recently. Additionally, a lot of surplus savings, which traditionally went into fixed income and bank deposits, are now flowing into real estate due to low interest rates and high inflation.

“The last two to three years have been very rewarding for investors, and as a result, we are seeing excessive money flowing into real estate from investors and speculators. This has squeezed the genuine home buyer who is looking to purchase their first home or upgrade. This is a reality across most Indian cities today,” informs Santosh Joseph, CEO, Germinate Investor Services.

Rohit Sarin, Co-Founder, Client Associates – India’s Leading Multi-Family Wealth Management firm, says the real estate sector has become more attractive to investors looking for capital appreciation, rather than end users seeking to purchase a primary residence.

“Additionally, there has always been a noticeable lack of supply in the affordable housing segment, as developers typically gravitate toward the luxury segment due to the higher profit margins. Unfortunately, now even the prices in the luxury housing space have escalated to levels that are becoming financially unviable for most genuine end users,” he adds.

When To Buy

With the current soft interest rate regime, it makes sense to buy when attractive low interest rates are available. Real estate is one of the reasons we experience slightly elevated inflation, and if one expects 6 to 7 per cent inflation, real estate should by and large mirror or at least match that.

So, “the sooner you buy and lock in favorable terms, whether it’s the interest rate or the property price, the better it is. Like with all forms of savings and investments, starting early helps. And especially with a home, it serves a dual purpose—you get to consume it by living in it, and it also becomes part of your broader investment strategy,” says Joseph.

Financial planners suggest adopting a dual approach as given the pace at which residential real estate prices have increased across urban India, only returns from listed equities have been able to outpace property price growth over the long term.

“If one is planning to purchase a house for self-occupation, leveraging a home loan is advisable, especially since interest rates currently is relatively moderate 8–9 per cent per annum. Simultaneously, it is prudent to invest regularly through equity-based Systematic Investment Plans (SIPs), which help compound savings. This strategy not only builds long-term wealth but also creates flexibility in managing large future expenditures like home purchase,” advises Sarin.

Home Loan Strategy

It is true that many people can’t afford to buy a home entirely from their own pocket and will have to rely on home loans. Traditionally, 10 to 20 per cent is the standard down payment required. Then, there are other expenses like stamp duty, registration charges, and furnishing the home to make it livable.

Generally, the loan amount depends on the home cost, the interest rate, and your ability to pay the equated monthly installments (EMIs). If you have some savings, use a large part of that and borrow the rest. It’s important to strike a balance between the cost of the home, how much you’re borrowing, and the EMI you can afford.

“You need to consider whether you’re going for a home within your budget, or something bigger that requires more of your own funds. Some people are comfortable with higher EMIs and prefer to put in less from their pocket. Others prefer a smaller EMI and contribute more upfront. The key is to be aware of your comfort with EMIs,” says Joseph.

For higher income individuals, EMI may not be a concern, and they have the flexibility to choose a home loan tenure of 5, 10, 20, or even 30 years. While the traditional tenure is around 15 to 20 years, some prepay early, while others opt for longer terms to keep EMIs more manageable month to month.

Sarin suggests going for the maximum amount of funding available and that one can pay back in EMIs, provided it remains within their repayment capacity and long-term financial planning. “Taking higher leverage allows the buyer to conserve their capital, thereby optimizing overall financial efficiency. However, it is important to assess the EMI burden and ensure that it fits comfortably within the household’s monthly budget,” he adds.

Loan Structures to Improve Affordability

Banks typically lend 4X your annual in-hand salary as a home loan. So, if your annual salary is Rs 25 lakh, you can get a loan of up to Rs 1 crore. Banks will typically restrict your FOIR (Fixed Obligation to Income Ratio) to 40-45 per cent.

“This means your all your EMIs cannot be more than Rs 93,000. If your average credit card bills are large or if you have other loans such as a car loan or a personal loan for which you are paying a significant EMI, your ability to borrow as per your salary decreases. This means you may actually be able to borrow only, say, Rs 80 lakh, instead of Rs 1 crore despite having a larger income,” says Adhil Shetty, CEO, BankBazaar.com.

As a first step, reduce your credit burden. Try to pay off as many outstanding loans as you can before you apply for a home loan. Make sure all your EMIs and bills are paid on time, so you have a strong credit score and history.

Another way to check monthly outflow is by opting for a longer tenor. “For a Rs 1-crore loan at 8 per cent, increasing the tenor from 20 years to 25 years or 30 years reduces the EMI by roughly Rs 6500 and Rs 10,000, respectively. However, this 12 per cent reduction in your EMI raises your overall interest by roughly 63 per cent. So, unless you have a very good prepayment plan in place, this may not be a wise idea,” suggests Shetty.

The most commonly used way to increase your FOIR is to have a co-applicant or co-borrower. In this case, your joint incomes will be considered, and even if you individually have another loan running, jointly, the impact on your FOIR will be very less.

Other Considerations

You need to keep in mind that credit norms of most home loan lenders cap EMIs at 30-40 per cent of the monthly household income. That in a way defines the borrowing capacity of an individual and, therefore, the budget of the property that one can buy. It’s important for individuals to stay within this range not just for loan approval, but also to maintain overall financial health and ensure there is enough liquidity for other essential expenses and long-term goals.

“If you go beyond 35 to 40 percent of your income towards EMI, it generally starts to cause financial stress. You also have to account for the possibility that interest rates may rise, which could increase your EMIs or extend the loan tenure. So ideally, if your EMI falls within 30 percent to 40 percent on the higher end, it should be a manageable and balanced approach to maintaining financial stability while repaying your home loan,” says Joseph.

You can also look for peripheral areas which offer a more affordable gateway into homeownership, especially in high-priced metro cities where central locations are often out of reach. If the location aligns with your long-term plans, investing in the suburbs is not just practical but can be strategic.

Look for areas with strong current or upcoming infrastructure—like metro lines, highways, or airport access—that can boost future value. Ensure essential amenities like schools, hospitals, and retail are nearby for better livability. Check the developer’s credibility and RERA approvals to avoid risks. Also, consider the area’s growth prospects and resale potential over the next 5–10 years. With the right planning, peripheral markets can offer both affordability and solid long-term returns.