Planning to take a home loan? Know about Mortgage Guarantee Backed Loans
November 5, 2016
The real estate prices in India have seen a consistent increase in the past few years.However, the lowering of interest rates on home loans has been a reason for cheer among prospective home buyers. Though lower rates of interest imply enhancing home loan eligibilities and lower EMIs, home buyers are still looking for more attractive schemes that would offer them more funding and easier financing options.
Easier financing is still a little further away in terms of development, but these days, steps are being taken to take care of the increased funding. This of course includes the flexible loan to value (LTV) ratios that under some schemes may go up to 80% of the market value. Another revolutionary development in this field has been the introduction of mortgage guarantee-backed home loans.
The Mortgage Guarantee Backed Home Loans
For such loans, the lending institutions are provided mortgage guarantee by the India Mortgage Guarantee Corporation (IMGC) against any default on these loans by the borrowers. This helps in reducing credit risks and loan exposures for the lender, who in turn are able to offer borrowers more relaxed terms like longer tenures and higher loan amounts.
Banks face lesser risks with this provision in place as a certain %age of the loan-to-value will be backed by IMGC. Also, the borrower will pay a guarantee fee which will be directed by the bank to IMGC for providing cover against the risk of credit default.
The Disadvantages of a regular Home Loan
There are a number of requirements that govern an applicant’s home loan eligibility. For example, most banks do not offer long term loans past the applicant’s age of retirement, i.e. the loan tenure cannot extend beyond the applicant’s 60th year. This results in lower loan amounts and higher EMIs for a number of borrowers who apply for loans in their late thirties or early forties.
Another eligibility factor is that often self-employed individuals are offered lesser tenures as compared to salaried individuals. Due to such limitations imposed on tenures and EMIs, a number of borrowers find it hard to meet their actual requirements. In many cases, the borrowers also have to take personal loans with high interest rates to actually meet their financial requirements.
How is a home buyer benefitting from a Mortgage-backed Home Loan?
For such borrowers, the mortgage guarantee-backed loans prove to be a great option, wherein they can avail longer tenures and higher loan amounts after paying a guarantee fee for the loan amount he intends to avail.
Normally, with property loans, the borrowers are unable to get a tenure exceeding twenty years, but with the mortgage guarantee backed loan option by IMGC, the tenure is much more flexible in favor of the borrower.
Another benefit is the increased eligibility, as most lenders follow the standard norms for income eligibility; meanwhile, IMGC evaluates each and every possible income stream in detail, to understand the customers’ true eligibility.
IMGC team members are trained to get into a detailed understanding of the customer’s income and obligations, combining the income of applicant and co-applicant, and looking at all the aspects of the loan to enhance theoverall eligibility.
The lender shop is more like a factory, which processes home loans based on some predefined parameters.With the large number of applications that they receive on a daily basis, it is hard to follow any other method. However, IMGC is like a specialized boutique, which tries and finds a customized solution for each of its customers.
The main advantage of having mortgage guarantee is the ability to apply for a higher loan amount. The mortgage guarantee-backed home loan offers a distinct advantage to those who wish to opt for a home loan later in life. Instead of being forced to choose shorter loan tenures, the borrowers will be able to take longer tenures under this scheme. A longer tenure also implies a higher outflow of money as interest. Most importantly, the mortgage guarantee-backed home loan scheme has made loan accessibility easier for people; and with the increased tenures and higher loan to value ratio, it has brought home buyers closer to owning ahome they’d always wanted to.