RBI has announced to set up Mortgage Guarantee Company (MGC). This Mortgage Guarantee Company will provide home loan lending institution against any default in home loan. MGC will take some charges for providing this cushion from the landing institution.
A home loan lending company will get security against default of its customers after paying some price to Mortgage Guarantee Company. This will reduce the interest rates in home loans.
Currently one percent of the home loans customers defaults. For those good customers pay the price. Home loan lending company adds the cost due to defaults by customers, to the cost of funds in the very first place, and increase the lending rates to recover that cost.
MGC will help reduce the fraud in housing sector. According to RBI (Reserve Bank of India) guidelines, the mortgage guarantee will be given through a tri-partite contract among the borrower; the creditor institution and the mortgage guarantee institution. RBI has told this MGC can come into effect with immediate effect. So MGC will register with RBI and start working with lending banks. So, with setting up of this company, I expect bank will not send goons to their customer’s home for recovery.
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