Private Mortgage Insurance

Private mortgage insurance is a special type of mortgage insurance product that protects the interests of the mortgage borrower and the mortgage loaner. The Indian private mortgage insurance products are meant for individual mortgage loan borrower and are not meant for groups or companies.

The need for private mortgage insurance cropped up due to huge defaults in mortgage loan repayment. In other words, the rising number of mortgage loan defaulters necessitated the introduction of private mortgage insurance products. Further, high mortgage loan value is another factor which also added to the cause. With rising real estate prices in urban India, the buyer finds it difficult to finance the high cost of residential houses or flats. As a result, home loan finance or home mortgage becomes a viable option for ownership.

On the flip side, the home loan facilitator or the home finance companies are in a Catch 22 situation, with rising number of customers and an ever-growing number of mortgage loan defaulters. To negate this problem, the concept of private mortgage insurance came into existence. The private mortgage insurance actually hedges the risk of the mortgage loan facilitator against any default of mortgage loan repayment. The lender of the loan mortgage extends the loan against a valid insurance of the mortgage borrower. The insurance so accepted as collateral is further invested in the secondary market by the mortgage loan facilitator but the premium is paid by the borrower. This insurance premia are generally very high and usually bears a moderate risk quotient. These specialized private mortgage insurance products are of 2 types -

Private Mortgage Insurance:

This refers to insurance products that protect the borrower from the lender in the event of default which generally covers a substantial portion of the capital borrowed. They are insurance products of private insurance companies.

Mortgage Insurance Premium

These are insurance products that also protect the lender in the event of non-payment due to disability of the mortgage borrower. These life insurance products are generally government insurance products.

The following types of rates are prevalent in the Indian private mortgage insurance market -

• Fixed Mortgage Rate - In this case, the rate of interest remains fixed throughout the loan term. The mortgage rates do not vary 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% and 25%.
  
  
• Flexible Mortgage Rate - In this case, 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 offering private mortgage insurance products 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

Life Insurance Corporation of India enjoys complete market leadership in this sector. The estimated size of the organized mortgage industry in India accounts only for 25% of the total housing investment in India. The private financial institutions like commercial banks, including National and Foreign Banks along with Cooperative and other non-banking financial companies are also registering a steady growth since 2000. The Indian mortgage loan industry is consistently registering a 20-50% growth on a year-on-year basis, from the year 2000 onwards. Much of the success of the growth of this industry in India can be attributed to the Government of India's liberal economic policy promulgated since the early 1990s.

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Last Updated on 5/26/2011