Mortgages are a very common term nowadays
and I am not sure people have really understood the real meaning of this term.
I can explain that a mortgage is nothing but loan given by any financial institution,
upon the accepting a real property as the collateral. The purpose of this can
be purchase a home, for business needs, to meet personal expenses, constructing
new homes etc.
When we discuss about the difference
between US mortgage and Indian mortgages, we need to consider different terms
associated with it.
The first term is Mortgage Backed
Securities (MBS). Most of the US mortgages are converted into sold in secondary
market and converted in Mortgage backed securities. To facilitate this the public
agencies such as Fannie Mae and Freddie Mac play vital role. When it comes to
India, even now less than 1% of the mortgages are being converted into MBS. In
India this is mostly been facilitated by National Housing Board (NHB). That too
they sell mostly through HDFC Ltd. Indian mortgages are mostly could be called
as home loans.
Second is rate of the loan. As you all now
the lending rates in US is much cheaper than India and that makes a huge
driving force in US mortgage market. The average interest rate of US mortgage
rate is 3 to 4.5% APR. Whereas in India the average bank lending rates are
varied from 10 to 12% per annum. But we can be optimistic that the lending
rates of mortgages in India may come down in near future as economy is
improving in the recent years.
Third term I would like to discuss is term
of the mortgage loans. In US most of the loans are for term of 360 months,
means 30 years. But in India the term of normal mortgage loan is 20 years. It
is significantly important that as the rate of Indian mortgages are high,
people prefer for a term that is minimum as possible.
Next term we need to discuss is the scope
or future of Indian and US mortgages. When we consider US mortgages, it is
steady and would not be having a significant growth in the sales of mortgage,
as the US market is already a grown one. But when we look at Indian market for
mortgage sales, 210 million new urban Indians will need about 60 million new
homes by 2030. It should be kept in mind that India already need 21 million homes
as of now to meet the current demand in urban areas. So, urban India needs 81
million new homes by 2030, or an average of 4.5 million homes per year. It
comes roughly 12 times of US mortgage sales output. Keep in mind that this
figures only the urban India statistics in case of mortgage. This is a huge
potential and shows a massive opportunity for Indian financial institutions in
the coming years for selling mortgage loans.
Finally, the US mortgage industry is a well
regulated and structured industry. It has all the applicable rules and
regulations to make sure that different financial institutions follow
uniformity in different stages of mortgage loan processes. But in India it
still needs to be structured and regulated. Examples are common set of rules to
be followed at the time of loan application, a common loan application form, a
standard mortgage loan agreement etc. It can be expected in the near future
that there is a standard procedure would come in place and government of India
would take necessary steps to set up this.
----------- JOJAN MATHEW, Market Analyst
----------- JOJAN MATHEW, Market Analyst