LICHFL (LIC Housing Finance) has officially tied up with IMGC (India Mortgage Guarantee Corporation) for offering easy home loans to customers along with increased loan eligibility. LICHFL will now be able to sanction home loans with extended tenors going up to the age of 75 years with back-up offered by IMGC (India Mortgage Guarantee Corporation). LIC Housing Finance will also be able to offer increased loan tenors to customers as a result. The monthly EMI amounts will go down for home loan borrowers while the loan amount may also increase accordingly.
This is a highly strategic partnership and one that will help LIC Housing Finance integrate a higher number of home loan customers while scaling up overall market penetration while tackling NPAs (non-performing assets) at the same time. Under this new collaboration, India Mortgage Guarantee Corporation (IMGC) will be offering mortgage guarantees to LIC Housing Finance. This is basically a financial product which offers compensation to lenders and financial institutions from the losses that may arise from any defaults on mortgage based loans.
According to experts, LIC Housing Finance will be able to cater to more home loan customers as a result of this partnership while enhancing overall eligibility criteria, easing out any limitations on the profiles of applicants who may be rejected due to their work place, work profile or credit history among other major reasons, extending repayment tenors and so on. Most importantly, this partnership will help in combating overall risk levels across multiple categories of lending. The company will also be able to get more customers from a large pool of employees who are working at MSMEs, SMEs, self-employed individuals and also smaller entities which have hitherto been out of the conventional lending sector in this segment.
There are customized products that have been tailored by the teams at LIC Housing Finance Limited and also India Mortgage Guarantee Corporation which will help the former reach out better to borrowers as part of its next big expansion drive. Both companies are looking at expanding upon their partnership in a smaller time period as per reports. LIC Housing Finance Limited is also looking at backing the Government’s vision of Housing for All by 2022 with this strategic tie-up. Older customers will now get loans up to the age of 75 with longer repayment tenors and lower monthly EMIs. Borrowers may also choose to avail of higher loan amounts with the enhanced eligibility.
How does mortgage guarantee work?
IMGC has a special mortgage guarantee mechanism in place which will come in handy for LIC Housing Finance Limited as stated above along with other lenders and financial institutions. Mortgage guarantee offers a special back-up for financial institutions offering home loans against any chances of default by the borrower/customer. In case of a rare default by the borrower, IMGC will be paying the installments to the lender for a period up to two years by which duration the repayments will either be brought on track by the borrower or the lender will have to adopt other recovery methods.
Home loans are usually perceived as the safest financial products currently in the market. Most borrowers take measures not to default on their home loans and take risks of losing the biggest asset that they usually spend the highest amounts on. Default rates have mostly been between 1-2% on home loans which have also been the steady growth segment for most lenders. Mortgage guarantees enable borrowers to get higher loan amounts than what they would have normally got under present regulations and eligibility criteria of banks. This may also enable longer repayment tenors for borrowers as well. Home loan repayment periods may be extended well beyond the retirement years of the customer with a mortgage guarantee, something that most lenders will never sanction in the normal course of things.
These products may help banks access a wider pool of customers in addition to future savings on risk capital by taking this mortgage guarantee. This product has been finding favor with several financial institutions like LIC Housing Finance Limited and many others. There is a major shift towards affordable housing in the country and lenders are willing to sanction home loans in this category provided that they come with some guarantee at least. Several lenders are also witnessing their highest growth in the home loan segment with ticket sizes between Rs. 10-15 lakh in the affordable home category and also in the sub-Rs. 30 lakh category. This is where mortgage guarantee plays a vital role in empowering the customers, many of whom are also outside the conventional lending framework employed by financial institutions.