Mr. A is a 45 year old salaried individual who is earning Rs. 60,000 per month. He has finalized a 3BHK to buy, which will cost Rs. 65 Lakhs. If he approaches a bank for a home loan as per the existing policy:
- The maximum tenure that he will be offered for the loan will be 15 years (taking his retirement age to be 60 years)
- At 10% interest rate, taking into account his income, he will qualify for a loan amount of only Rs. 50 Lakhs.
Looking at this scenario, Mr. A has to either drop the idea of buying the house he liked or take a personal or any other expensive loan.
Mr. B is a self-employed professional whose work is seasonal in nature. He is looking at buying a villa for his family in an upcoming location at Rs. 50 Lakhs. He is getting this price as one of the first buyers.
Based on what he earns during his peak employment season, he is very much capable of repaying a home loan of that magnitude. However, the bank is offering only Rs. 38 Lakhs, leaving him Rs. 12 Lakhs short.
Looking at this scenario, Mr. B must either drop the idea of buying the house he likes or take a personal or any other expensive loan; or even take out money from his business which may not be too prudent.
Mr. A, with Mortgage Guarantee, can avail an additional 7 years in the tenure on the loan, plus if Mr. A has some additional income or savings, it will be considered positively while evaluating the loan request. This will increase the loan amount eligibility by approximately Rs. 15 Lakhs to Rs. 65 Lakhs.
Mr. B can opt for a Mortgage Guarantee backed home loan which will ensure a higher loan amount to buy the villa he wants to as his seasonal income and business establishment will be considered positively to qualify him for a higher loan amount.
Mortgage Guarantee is provided to the lenders (banks and NBFCs) by an MGC and acts as an insurance against defaults on loans by the homebuyer, thereby reducing the loan exposure and credit risks for the lender. The objective of Mortgage Guarantee backed home loans is to mitigate the risk that is taken by the lenders. The lenders, in turn, are able to provide better terms on home loans to the home buyers.
*NBFC – Non-Banking Financial Company
Since the lenders have a guarantee support from MGC for the loan amount that they lend, they can offer higher eligibility, and longer tenures on home loans, thus helping customers secure higher loan amounts. While the homebuyer is still the one who is responsible for the EMI payments, Mortgage Guarantee helps increase his eligibility, whether it is in terms of increasing the maximum age limit or the loan value.
MG backed home loans are meant mainly for prospective homebuyers who may have a limited financial outlay, or do not want to break their hard-earned savings for buying a better home with better amenities. It will also benefit self-employed individuals who are unable to get longer tenures, and higher eligibility due to seasonality in incomes. Mortgage Guarantee backed home loans can be a boon especially for first time homebuyers, thereby encouraging early home ownership.
You simply have to request your bank or housing finance company to process your home loan with Mortgage Guarantee, wherein IMGC assesses home loan applications on a case-to-case basis, and determines the amount that a home loan an applicant is eligible for. This in turn reflects in the final approved home loan amount and the loan repayment tenure