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ICICI Bank on Wednesday launched the country's first mortgage guarantee-backed home loan that will allow consumers to increase borrowing by 5-20 per cent and the tenure up to 67 years of age.
Typically, banks do not allow home loan tenures beyond 60 years of age.
This is how it works. Assuming that based on your age, income and other eligibility criteria there is a difference in the amount you need to borrow and the amount sanctioned by the bank, then the ICICI Bank Extraa Home Loan can help in meeting the shortfall for a fee.
For instance, a 47-year-old borrower earning Rs 75,000 a month needs a home loan of Rs 44 lakh, but the bank sanctions only Rs 39 lakh. The borrower till now could take a gold loan or a costly personal loan to meet the shortfall of Rs 5 lakh.
Under Extraa Home Loan, if his tenure is extended by five years the borrower can avail a higher loan of Rs 45.5 lakh. However, for this extra Rs 6.5 lakh the customer will have to pay a fee.
The fee is 1-2 per cent of the total loan amount and depends on the loan amount, income and profile of the borrower. The fee is the insurance premium for the extra loan amount, which is provided by India Mortgage Guarantee Corporation (IMGC).
Since the risk for the additional home loan would be borne by IMGC, it would not impact the bank's books, said Chanda Kochhar, managing director and chief executive officer of ICICI Bank
ICICI Bank's rate of interest for home loans up to Rs 75 lakh varies between 9.85 per cent and 10.05 per cent. On the other hand, the interest rate for a personal loan can vary between 12.99 per cent and 20 per cent. The Extraa Home Loan may work out cheaper.
ICICI Bank is targeting the middle-aged salary customer, the first-time home loan borrower and the self-employed customer with this product.
"The product is suitable for someone in the age group of 30-40 or older, because at that age a 25-year loan is difficult to come by. This is a common problem, of borrowers looking for longer tenure loans but being constrained because banks cannot extend the tenure due to retirement age and income," said Gaurav Gupta, founder and CEO of MyLoanCare.in.
Kochhar explained that the size of the home loan market in India was Rs 9,70,000 crore and it was growing at a compound annual rate of 15.6 per cent over the last 10 years. "Mortgage as a percentage of GDP for India stands at only 8 per cent compared to 60 per cent for most developed economies. Also, if we look at the government's plan of housing for all, then by 2020 India will need 11 crore housing units. This product will help in bringing several first-time borrowers into the fold."
Property prices have increased by 72 per cent over a period of five years. However, the median income has not increased kept pace, making houses unaffordable for several consumers.
The average size of ICICI Bank's home loans is Rs 35-37 lakh and the average tenure is 12-13 years. Kochhar said the bank's home loan book had been growing at 25-27 per cent in the last few years. At the end of 2014-15, retail loans were 43 per cent of the bank's total loan book, of which mortgage loans accounted for 55 per cent.
The Extraa Home Loan will be available in Greater Mumbai, the National Capital Region, Bengaluru and Surat for a maximum amount of Rs 75 lakh. However, the maximum loan to property value cannot go beyond 80 per cent, according to the Reserve Bank of India's norms.
Whom will Extraa Home Loan benefit?
The extension of tenure from 20 to 25 years is more beneficial than an extension from 25-30 years. For example, assuming an income of Rs 60,000 and an interest rate of 9.85 per cent, for a 20-year tenure, the loan eligibility is Rs 40,75,000. For a 25-year tenure, it is Rs 43,50,000. For a 30-year tenure, it is Rs 45,00,000.
So, the difference between the 20-year and 25-year tenure is Rs 2,75,000, while the difference between the 25-year tenure and 30-year tenure is Rs 1,50,000.
