How would you feel if you received word about home loan eligibility easing up for borrowers? Delighted of course? But naturally! This is the feeling that several prospective homebuyers are expected to experience when they hear of the tie-up between HDFC Bank and IMGC. For the uninitiated, IMGC stands for India Mortgage Guarantee Corporation which offers mortgage guarantees for home loans.
Sounds familiar or not? Mortgage guarantee is not a widespread concept although it is picking up like anything in India. This financial product is what ensures compensation for the lender in case of any losses arising out of the default of the home owner on the mortgage loan. The overall home loan risk is thus transferred to the mortgage guarantee company or IMGC in this case from the bank or financial institution, i.e. HDFC Bank in the current scenario.
What this means for customers
HDFC will naturally be aiming to penetrate home loan markets more and access an even bigger base of customers with this tie-up as per several experts. HDFC Bank will now be able to offer more loans to customers since home loan eligibility will increase as a result of mortgage guarantees. This may enable customers to get access to home loans going beyond their period of retirement as well.
HDFC is still working on the intricate details of the financial product and will release it soon enough in the Indian market. Mortgage guarantee is already popular with customers globally and this partnership will help the bank come up with diverse offerings to reach a wider customer base. HDFC will also be able to go full throttle under the Housing for All by 2022 mission and PMAY (Pradhan Mantri Awas Yojana) scheme.
The partnership will mainly be catering to salaried customers (middle-aged), self-employed applicants and also younger salaried applicants along with un-serviced customers who constitute a much wider category in themselves. IMGC has already witnessed huge customer acceptance for its specialized financial product in the country and there is higher interest in making use of mortgage guarantees for managing and mitigating risks throughout various categories of lending. This concept is already popular in global markets like Canada, the United States and Australia with overall market penetration levels touching anywhere around 15-22% on an average as per reports.
Mortgage guarantees are already increasing in India and penetration into the market is anywhere between 5-20% throughout several lenders who are tapping this product for increasing their retail loan counts.
Why you should be happy
If you haven’t applied for your home loan already, you can definitely consider this concept at your end. Do your research and read up on IMGC and also wait for the finer details to be released by HDFC Bank. Of course, a mortgage guarantee will help you get your home loan sanctioned faster since the bank will now be able to assess risks and yours will be on the lower side.
Additionally, you can get home loans (since they are guaranteed) for a longer time period, stretching beyond your retirement. This will be a major benefit for several borrowers who have no choice but to avail of these loans. Consider a scenario where a person- let’s say Mr. Kumar, is 45 years of age and wants to take a home loan to build his dream home for his family.
Now, Mr. Kumar is looking to apply for a home loan and with the mortgage guarantee provision, he may get a loan beyond his retirement age of 60 till the age of 62/63 depending on the lender. This benefits him since he can comfortably repay the monthly home loan EMI until he retires and then use the surplus retirement funds to settle the remainder of the home loan amount.
If you’re in a similar situation, this concept will definitely work. Also, an increase in home loan eligibility will also be welcome for several borrowers, considering the increase in housing costs and other add-ons these days. As a result, HDFC’s tie-up is a significant move and many other financial institutions are expected to follow suit in terms of partnering with mortgage guarantee companies. This will propel the concept to newer heights of popularity in India over the next few years.