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How to take a home loan against digital assets

A saying goes that home is where the heart is and this holds true for Indian households. Of all the assets they own, they have a staggering 49.4% of their assets invested in property.

A majority of Indians, over 50%, reside in houses they own, while nearly 30% live in rented apartments, and 13% live with their parents. India boasts of a youthful population, with an average age of 29, and the younger generation aspires to achieve the dream of homeownership.

However, purchasing a home is a significant financial investment and that’s where home loans come into play. Home loans are provided by lenders with interest rates ranging from 6.5% to 10% per annum, and the loan tenure can last anywhere from 5 to 30 years.

For home loans, the home is the actual collateral but varies for different kinds of homes, old and new, and accordingly, down payments for the homes also vary. Therefore, it’s not just the home that can be considered as collateral, but other digital assets like stocks, mutual funds, life insurance, bonds, national savings certificate, Kisan Nivas Patra, and more can also be used in home purchases.

1. Benefits to borrowers

Down payment optimization – Making a down payment when purchasing a home is often not favored by individuals. However, if someone already owns a significant amount of digital assets and intends to keep them for a long period of time, they may consider using them as collateral. This can result in the borrower obtaining a loan with a 100% loan-to-value ratio.

The challenge of purchasing an older property – Banks and NBFCs often have difficulty financing the purchase of older apartments or houses. Loan terms are typically shorter than those offered for new properties, usually less than 10 years, which results in higher monthly EMI payments. To extend the loan term, reduce monthly payments, and provide better interest benefits to the borrower, using existing digital assets as collateral may be a viable option.

Land acquisition advantage – Not everyone prefers to purchase a ready-made home. Some individuals may opt to buy land and construct their own homes, establishing their own territory. However, obtaining a loan for land purchase can be difficult, as lenders may not provide financing for this type of purchase. To complete a land acquisition, individuals can use their existing digital assets held with depositaries and custodians as collateral by pledging the asset.

Interest costs – The longer the loan term, the lower the interest rate but the higher the interest costs will be. To have the best of both worlds, providing more collateral is the solution. This can help to secure lower interest rates even for shorter-loan terms.

2. Will pledging your assets impact your dividends, bonuses, or share buy-backs?

When one pledges an asset, it serves as collateral for the lender. However, one still retains ownership of the pledged digital asset and continues to receive dividends and bonuses. To participate in a share buy-back, one would need to first unpledge the shares from the lender and repay the principal amount.

Overall, this can bring great benefits to individuals as digital assets, held in depositaries or custodians, can serve as a source of appreciation or depreciation. Utilizing these assets for practical purposes, such as buying a home, can have a transformative impact on the Indian economy.

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