Buying a home is often the biggest financial decision most people make — and taking a home loan is how many achieve it.
But what happens if the property’s market value drops after you buy it?
Will your EMIs change?
Will the bank ask for more money?
Could your ownership be at risk?
Let’s decode what really happens behind the scenes when property prices fall during an active home loan.
1️⃣ The Loan Value Stays the Same — But Your Equity Shrinks
A home loan is based on the property’s purchase price and loan-to-value (LTV) ratio, not its future market value.
If your property’s market price drops after purchase:
Your loan amount remains unchanged,
But your property equity (ownership portion) decreases.
📊 Example:
You bought a flat worth ₹50 lakh with a ₹40 lakh loan.
If the property value falls to ₹40 lakh, your equity becomes ₹0 — the entire property value equals your loan.
This situation is called being “underwater” or “negative equity.”
2️⃣ Does the Bank Ask for More Money?
In most cases, no.
Banks in India rarely ask borrowers to top up their margin money or provide additional collateral due to temporary market fluctuations.
However, if:
You default on EMIs, and
The bank has to auction your property for recovery,
then a lower property value could mean the sale proceeds won’t cover the full loan, leaving you with residual debt to clear.
So, while the bank won’t call immediately, a value drop increases your risk exposure if you can’t repay.
3️⃣ Impact on Refinancing and Top-Up Loans
If your property value falls significantly, it affects your borrowing power:
No new top-up loan: Banks will refuse additional loans against the same property.
Lower refinance eligibility: When you try to switch lenders, your revised LTV might exceed limits, disqualifying you from a refinance offer.
💡 Tip: Always check your property’s current market value before applying for balance transfer or top-up financing.
4️⃣ Impact on Selling or Prepaying Early
If property prices fall, you might struggle to sell the property without incurring a loss.
For example, if you owe ₹38 lakh but your house is now worth ₹35 lakh, selling it won’t cover the full loan.
To sell, you’ll need to clear the remaining ₹3 lakh from your pocket to close the loan.
That’s why experts recommend keeping loan outstanding lower than 70% of the property value after the first few years.
5️⃣ How to Protect Yourself from Property Value Drops
✅ 1. Avoid Over-Leverage:
Limit your loan to 80% of the property cost or less. The lower your LTV, the safer you are.
✅ 2. Focus on Location & Quality:
Properties in prime areas or with solid infrastructure rarely lose value drastically, even in downturns.
✅ 3. Build a Prepayment Plan:
Making small prepayments regularly reduces your loan balance faster — creating equity buffer even if property value drops.
✅ 4. Diversify Investments:
Don’t put all your money in real estate. Balance it with mutual funds, gold, or bonds to offset market fluctuations.
✅ 5. Stay Long-Term Focused:
Real estate usually recovers over time. Don’t panic-sell in short-term dips.
Final Thoughts
A fall in property value doesn’t make your home loan more expensive — but it can make you more vulnerable.
You still owe the same loan, but your ownership share shrinks, and flexibility in refinancing or selling disappears.
The best defense?
Strong repayment discipline, low leverage, and smart diversification.
Property value may go up or down — but a well-structured loan keeps you secure through both.
❓ Frequently Asked Questions (FAQ)
1. Will my EMI increase if property prices fall?
No. Your EMI depends on your loan amount and interest rate, not the current market value of the property.
2. Can banks demand more collateral if property value falls?
Generally, no. Indian banks don’t reassess security value for existing home loans unless you default on repayments.
3. What if I want to sell my house but its value is lower than my loan?
You’ll need to pay the difference between the sale price and outstanding loan amount to close the loan and transfer ownership.
4. How does falling property value affect my credit score?
It doesn’t directly affect your score — only repayment behavior does. But defaulting due to negative equity will harm your credit history.
5. Can I refinance my home loan if property prices have dropped?
Only if your new LTV ratio meets the lender’s requirements (usually ≤80%). Otherwise, refinancing options may be limited.
Published on : 10th November
Published by : SMITA
www.vizzve.com || www.vizzveservices.com
Follow us on social media: Facebook || Linkedin || Instagram
🛡 Powered by Vizzve Financial
RBI-Registered Loan Partner | 10 Lakh+ Customers | ₹600 Cr+ Disbursed