You could soon be able to access housing finance from several home loan providers at improved terms and for longer duration, thereby lowering monthly installments. The India Mortgage Guarantee Corporation is in advanced talks with a clutch of lenders to formalise agreements to provide guarantee on the loans which in the long run would increase affordability for the home buyer.
“We are in active dialogue with 7-8 home loan providers for our guarantee product. We should be making announcements shortly,” Amitava O Mehra, Chief Executive Officer, India Mortgage Guarantee Corporation (IMGC) said in a interview with FeMoney.
At present, IMGC has agreements with ICICI Bank for new loan originations and has had transactions with Reliance Home Finance, Dewan Housing Finance Corporation and Home First Finance Company.
Mortgage guarantee helps in lower down-payment and also helps in extending the tenure of the loan thereby bringing down the equated monthly installments (EMIs). An IMGC cover makes it easier for lenders to offer loans at better terms.
“ICICI Bank is one of the early adopters and are offering a product with out guarantee to their consumers. ICICI Bank is offering a 30-year loan which it doesn’t do under normal circumstances and , all of a sudden the tenure goes up. So, either the EMI drops increasing affordability or for the same amount a consumer can afford to take a higher loan amount. Thus, the home-buyer can take a home that he really wants rather than compromising,” Mehra said.
Explaining the product, Mehra said that IMGC steps in as a guarantor on a particular loan or a pool of loans or a portfolio which can be an existing book. The guarantee agreement provides that if the loan goes into an non-performing asset (NPA) situation, IMGC steps in and makes the payment.
Mehra says is it a win-win situation for both the lender and the consumer. “In a scenario of 80 per cent loan-to-value (LTV), the consumer has to make down payment of Rs 20 on a loan of Rs 100. In that we put a 20 per cent cover on the Rs 80, which is an additional protection of Rs 16. The actual loan comes down to Rs 64 from Rs 80 for the lender. So, the risk carried by the lender is substantially lower. Now for the lender to suffer an actual loss, say two years later, the property value has to come down to Rs 60 or less which generally does not happen or has never happened. The lender is well protected in this scenario. We believe that from a lenders perspective it makes eminent sense.”
It is beneficial for the consumer too. “Where the consumer is getting additional loans which is than normal circumstances, they are adopting the product. They feel if they have to go to an alternative source for funding, there is that additional liability, either an obligation from a family member or paying an additional interest rate. We believe if you are doing it with our product, which anyway gives you a higher, incremental loan amount, it is a win-win for all.”
Mehra says that IMGC coverage can range anywhere from 10 per cent to 30-35 per cent of the entire loan. “Typically what we do is, we say that the guarantee would be on the outstanding amount at the time of default. For example, if one has started with a Rs 100 loan and three years later (when it becomes NPA) the outstanding is Rs 90, we will pay 30 per cent of Rs 90 instead of 30 per cent of Rs 100 because otherwise the price tends to become higher and higher since we hold capital base on our guarantee commitments.”