Property Insurance Could Lower the Home Loan Rates

By : 360 Realtors

19 April, 2017

The home ownership has always been a priority ambition on every Indian’s wish list from the investment purposes and also to increase their confidence of owning their piece of Earth.

After some drastic changes made in the year 2016, the Indian property market, in the coming years is expected to be much more transparent, professional and reliable with organized realty brands being the major players on the ground and subsequently this is expected to bring many positive changes in the Indian Real Estate Sector.

Buying a home normally takes up the lion’s share of the savings of a person. So any kind of damage by any sort of natural calamities say floods, storms, earthquakes leaves the person devastated. Hence, it is very important to get your home insured. Though people are not very willing to pay the extra cost but it is important to keep in mind that you are going an extra mile to pay for the PROTECTION of the most valuable asset of your life and not paying for the returns. For all those who are planning to buy property in India, should act wisely and get your home insured against all kinds of uncertainties in order to live a happy and secured life ahead.

A home insurance policy protects your house against all sorts of damages – natural or human-engineered, like any act of terrorism or burglaries. You are being paid for the damage happened to the building of your home, which is calculated as per a set formula. “Being secure is better than being sorry” is the main theory around which the concept of home insurance revolves. 

The RBI in its sixth bimonthly monetary policy review left the repo rate unchanged at 6.25%, which came as a big disappointment for all the realty developers. The repo rate is the rate at which the Central Bank lends money to all the commercial banks. Now, the developers along with the prospective buyers are hopeful that in the next policy review in April, the Central Bank shall announce a cut in the key rates. 

However, there is nothing to lose heart. The National Housing Bank (NBH), which is the key regulator for Housing Finance Companies in the country, in collaboration with the Indian Institute of Insurance (III) is working on a broad framework which shall reduce the home loan rates by 0.5% provided the borrowers opt for home insurance. This is aimed to reduce the default ratio as well. For this, a survey in association with the Indian Institute of Insurance shall be conducted to determine the feasibility of lowering borrowing rates through home insurance.

For example, if a borrower is paying an EMI of Rs 874 at 8.6 % for a loan amount of Rs 1 lakh for 20-year tenure, a reduction of 0.5% would make you pay an EMI of only Rs 842 for the same loan.

Earlier people bought property insurance because it seemed like a condition to get a loan but now you opt for home insurance and you get a cheaper loan. Home Insurance should never be confused with home loan insurance as the latter insures the money taken for purchasing a property whereas former protects the structure of the house against any sort of natural calamities.

If this plan works out well, the property buyers will have the privilege to get cheaper home loans. It will also help them in improving their risk profile.
This new deal would undoubtedly be beneficial for the buyers as their loan eligibility might expand and as a result the amount of funds received can increase and also they will avail a loan at comparatively lower interest rate. Nowadays since the banks and housing finance companies often pressurize the buyers to avail property insurance along with the home loan, so this new preposition would be profitable for both the parties. 

Even if the buyers will have to pay some additional cost for the insurance cover, still it would be an advisable option as the costs incurred would be nominal in comparison to higher interest rates.

For example: Housing Development Finance Corporation (HDFC), the largest mortgage lender, offers property insurance and other non-life insurances by the name of HDFC Ergo products. Dewan Housing Finance Corporation (DHFL) offers Cholamandalam MS General Insurance.

A smooth, flawless and transparent transaction process shall make the property insurance system more reliable and trustworthy and will instill confidence amongst the buyers, lending institutions like housing finance companies, banks and also the insurers besides promoting voluntarism for the same.
So, when next time you see a storm in the sky, don’t pray to God….opt for home insurance!