Mortgage Financing Rates

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Till the economic renaissance of India in the early 1990s, the Indian mortgage industry was unorganized and the Indian mortgage financing rates were highly volatile. The government of India liberal economic policy in the early 1990s facilitated growth of the manufacturing industry in India, which further propelled the growth of infrastructure industry in India. Furthermore, with the growth of infrastructure industry in India the the Indian mortgage financing industry witnessed tremendous growth. The organized mortgage financing sector of India are registering astronomical growth and it is estimated to be US $ 18 billion industry. Huge real estate requirements in India and its subsequent development has fueled its growth and further helped it ease the Indian mortgage financing rates.

The Indian mortgage financing rates are of the following types -

Fixed Mortgage Rate - in this case the rate of interest remains fixed throughout the loan term. The mortgage rates does not varies according to market conditions. In other words, the rate of interest is pre-fixed during the process of borrowing and it generally varies between between 12.5 % to 25 %.

Flexible Mortgage Rate - is one in which the interest rate varies according to market movements. This type of interest rate is called 'adjusting' or 'floating' rates. The risk factor is high in this type of interest rates.

Some of the well known mortgage financing companies operating in India are as follows -
  • LIC Housing Finance
  • HDFC
  • ICICI Home Finance
  • SBI Housing Finance
  • UCO Bank
  • Allahabad Bank
  • United Bank of India
  • Kotak Mahindra Bank
  • Citi Bank
  • Standard Bank
  • HSBC
Although, the size of organized mortgage industry in India is around 25% of the total housing investment in India but this industry is consistently registering 20-50 % growth on year-on-year basis from 2000 onwards. This industry is heating up and there is a mad rush for mortgage loans and the market is estimated to grow at a lightening pace in few years to come. The investment in housing has grown steadily over the past years as the proportion of outstanding housing loans as percentage of GDP increased from 3.4% in 2001 to 7.25% by 2005. This happened due to the easing of the mortgage financing rates in India which was catalyzed by the increased infrastructure sector activity. The huge real estate requirements to meet ever increasing residential and new business requirements are the main growth drivers of this industry. But, as per the international standards, the Indian mortgage financing rates are still higher. Furthermore, it has other bottlenecks which are hampering its growth, they are -

  • Ignorance amongst masses
  • Poor accessibility
  • Lengthy processing time
  • Elaborate documentation
To help the Indian mortgage financing industry grow and fulfill its huge requirements the Indian mortgage industry needs indirect government participation. Private funds and even FDI ceiling should be eliminated to see this industry grow to its full potential. Structuring mortgage instruments at affordable rates for each and every sections of Indian society is the need of the hour and which could not happen without the lowering of the Indian mortgage financing rates.

Last Updated on 5/26/2011