HOUSING FINANCE

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 Housing Finance
 Financial assistance is extended to purchase of land,
construction of house, purchase of constructed house, flat etc.
 Additional loans are given for repairing/ renovation as well as
for repayment of finance availed from other sources for
construction/ acquisition of house.
 Commercial banks, housing finance companies, co-operative
banks, housing finance subsidiaries of banks etc. are extending
housing finance.
 Since 1988, National Housing Bank (NHB) is regulating the
housing finance in India
 The financial institutions extending housing finance is required
to register with NHB and NHB refinances the housing finance
extended by them
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 Housing Finance

 NHB also extend housing finance under the Home Loan

account scheme through financial institutions registered
with them
 Under Home Loan account scheme, a borrower has to
initially open a savings account with the designated branch
of a commercial bank/co- operative bank and continue to
remit in this account up to a minimum period of 5 years
 The loan amount is fixed as 1.5 times of the amount
remitted to the account or Rs.2 lakhs which ever is higher.
 The amount remitted in the account constitutes the margin
towards the loan.
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 Housing Finance

 The borrower should be above 21 years of age and below 65

years. Some banks permit even up to 70 years
 Amount of loan depends upon the repaying capacity of the
borrower.
 Generally repayment period is fixed so as to liquidate the loan
before the borrower retires. However, if sufficient proof for
regular income is produced, period above 60 years is also
considered on a case to case basis.
 Repayment is by EMI.
 Some banks have entered into agreement with large companies
for granting housing loan to their employees under group
guarantee scheme in which case the company deducts the EMI
from the salary and remits to the bank
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 Housing Finance
 Security for the loan is the house property/flat purchased out of
the loan.
 Generally, banks do not insist on collateral securities, but they
insist on the spouse joining as co-obligant.
 The interest rate can be fixed rate of floating rate at the option
of the borrower
 Banks insist on insuring the house against natural calamities
like earthquake, flood, fire etc.
 Considering the national priority on housing, banks have set
apart a portion of their funds to be deployed as housing loan.
 Banks and financial institutions extend housing finance to the
people belonging to poor and weaker sections under priority
sector as a part of their social commitment.
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Residential Mortgage Backed Securities (RMBS)

 RMBS is a process of securitisation of housing loan

installments introduced at the initiative of NHB.
 The primary lender (Originator) sells the pool of
housing loan mortgages to a Special Purpose
Vehicle (SPV).
 SPV converts these mortgages into tradable
financial instruments known as Residential Mortgage
Backed Securities.
 NHB guarantees the RMBS.
 RMBS is a source for fee based income
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 Reverse Mortgage

 Reverse Mortgage is a facility introduced by the Government of

India to extend financial assistance to aged senior citizens who
are in their last leg of their life and do not have dependents to
look after them.
 The scheme is offered to persons above 62 years owning
residential property and living alone.
 Under this scheme, the residential property is mortgaged to a
bank which releases funds to the borrower monthly.
 Unlike the mortgage loans, there is no monthly repayments,
instead the financial institution will pay the borrower monthly.
 The borrower and spouse can continue to stay in the house
 The maximum period of the loan is 15 years.

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 Reverse Mortgage
 If the borrower survives beyond 15 years, the bank will stop the
monthly payments, but will permit him/her to continue to stay
in the house.
 The loan can also be availed in lump sum according to the
financial needs of the borrower
 In the event of the demise of the borrower, the bank will allow
the spouse to continue to stay in the house and the periodical
payments will be made to the spouse till the expiry of the
maximum period or death of the spouse whichever is earlier.
 After the death of the last survivor, the bank will sell the
mortgaged house and liquidate the loan. The balance if any will
be given to the legal heir.
 The borrower, if so desired, can prepay the loan without paying
any penal interest.
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 Reverse Mortgage
 NHB is extending refinance facility to Housing Finance
Companies/banks against the Reverse Mortgage
 NHB also guarantee the periodical payments to the senior citizens by
the banks/HFCs.
 The loan need be repaid only after the death of the last survivor or
sale of the borrower or the borrower moving out of the house
permanently.
 The loan amount depends on the borrower’s age, value of the property
and the lending institution’s interest rate.
 The valuation of the mortgage property is done based on actuarial
calculations and revalued every 5 years.
 The property should be free from all encumbrances.
 Borrower can use the loan amount for repair/renovation of the house,
medical expenses etc.
 The borrower has to pay the insurance premium and property taxes.
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