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Monday, September 21, 2020

Can a Mortgage guarantee help to get a Home Loan?

The COVID times have made it difficult to avail the funds from banks or non-banking financial institutions, especially for loan products such as a home loan. It is because the lending institutions are themselves coping up with liquidity challenges and are thus reluctant to provide borrowers home loans. However, a mortgage guarantee loan can indeed tackle your issue of getting finance if you are facing one.

 Let’s understand what a mortgage guarantee home loan is :

 What is a mortgage guarantee home loan?

A mortgage guarantee home loan is the home loan in which lending institutions avail the credit guarantee from the borrowers to manage the credit risk in case the borrower defaults. The borrowers need to pay a one-time fee which varies based on his credit profile for every lending institution.

 Now, how does this work?

 Consider, a borrower has availed a mortgage guarantee home loan worth Rs. 50 lakhs. Firstly, to avail of such home loans, the borrower needs to pay a specific fee, which may range from 1%-2% of the home loans. Now, in case the borrower is unable to repay the home loan and subsequently turns into a Non-Performing Asset. So, in this case, the financial institution will invoke the mortgage guarantee as per the guidelines of Reserve Bank of India. Thus, India Mortgage Guarantee Corporation (IMGC) will bear the loss of Home Loan depending on the percentage of mortgage guarantee as per the agreement.

 Do you need to pay this amount?

 While IMGC pays a certain amount of the home loan, the borrower still needs to pay the home loan EMI along with this loss borne. If he/she fails to repay the home loan, then the lender has the right to auction the mortgaged property and recover the full amount. Along with that, it will poorly affect the credit score of the borrower if they turn into default.

 So, how does a mortgage guarantee home loans beneficial for the borrowers?

 One of the most significant benefits of a mortgage guarantee home loan is that the lending institutions will process your home loan application faster. Also, it would provide you home loans at better terms with better eligibility, higher loan amounts etc.

 How can you get mortgage guarantee home loans?

Not all banks and non-banking financial institutions provide mortgage home loans. If you have applied for home loans with the lending institutions that provide these loans, then they would recommend you about the same.

 Some banks that provide mortgage guarantee home loans are listed below:

        State Bank of India (SBI)

       Axis Bank

       ICICI Bank

       Bank of Baroda

       LIC Housing Finance

       Tata Capital

        Shriram Housing Finance

  Other things you should know about mortgage guarantee home loans:

 1.      There are additional costs that you may have to bear on mortgage guarantee home loans which are solely dependent on various factors such as your credit profile, CIBIL Score, Sources of Income etc.

2.      For availing a mortgage guarantee home loans, you do not need to submit any additional documents. The documents required for such home loans are similar to home loan documents for a home loan without such guarantee.

3.      Also, the mortgage guarantee home loans are different from mortgage-linked life insurance, where the amount is borne in the case of unforeseen events such as the death of the borrower.

4.      These loans can reduce your dependency on other sources of finance as you can get home loans of higher values.

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