At a time when the realty market is plagued with rising property prices and dropping sales, there might just be some good news for home buyers as the National Housing Bank plans to roll out India’s first mortgage guarantee company in the coming weeks.
According to a BusinessLine report a four-way joint venture has been christened as India Mortgage Guarantee Company. National Housing Bank, US-based Genworth Financial, the Asian Development Bank and International Finance Corporation are the four partners.
A mortgage guarantee compensates lenders or investors for losses due to the default of a mortgage loan. Nickname/Flickr
A mortgage guarantee compensates lenders or investors for losses due to the default of a mortgage loan. For example if one takes a housing loan for a Rs 30 lakh property, the bank will only provide 70 percent of the loan while the remaining 30 percent has to be borne by the buyer himself, as per RBI norms. This is where a mortgage guarantee comes in. If the home buyer has limited liquidity, the mortgage company will protect the lender against a default in return for a fee. However, the guarantees are invoked in case of defaults by home loan borrowers.
Since there is a gaurantor for the asset, home finance companies will be able to either extend higher loans or reduce interest rates. As a percent of loan to the value of house is controlled by the central bank, bankers will now be keen in reducing rates since there is a lower risk involved.
Hence once a mortgage guarantee company rolls out, existing buyers can benefit from lowering of interest rates while more people will be able to avail credit more easily. The mortgage company provides credit guarantee to the lending company.
