Lok Sabha Question No. 564 (UNSTARRED), answered on 2023-07-24
Subject: Interest on Home Loans
Ministry: FINANCE
Asked by: Raghu Ramakrishna Raju Kanumuru

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA UN-STARRED QUESTION NO. 564

ANSWERED ON 24 th  JULY, 2023/ 2 SRAVANA, 1945 (SAKA)

## 'INTEREST ON HOME LOANS'

564. Shri. Kanumuru Raghu Rama Krishna Raju:

Will the Minister of FINANCE be pleased to state:

- (a)  the details of the rate of interest on home loans since 2011-12;
- (b)  the details of the rate of interest on reverse mortgage loan given to senior citizens since 201112;
- (c)  whether the house is mortgaged to a bank/ Government in both these cases of home loans and if so, the details thereof;
- (d)  the  reason  for  charging  10.50%  interest  from  senior  citizens  in  reverse  mortgage  loan  and 6.50% on loanees of home loans, overdrafts; and

(e)  the reason for such a wide difference and why the benefit of reduction of interest declared in the budget every year is not passed on to the reverse mortgage loanees?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (DR. BHAGWAT KARAD)

(a) to (b): As informed by the National Housing Bank, while the Weighted Average Lending Rate on Individual Housing Loan by Scheduled Commercial Banks (SCBs) has been in the range of 7.34% to 13.62%, the corresponding rate of interest on Reverse Mortgage Loan (RML) provided to senior citizens is in the range of 7.6% to 16.05%.

(c) The residential house is mortgaged with the SCBs in cases of both Home Loan/RML.

(d) to (e): The interest rate to be charged on the Home Loan/ RML is decided by the SCBs based on various factors e.g; cost of funds, risk perception/premium, loan pricing policy, tenor of the loan, etc.

The RML as a loan product has certain basic differences from conventional housing loan products, some of which are as follows:

- (i) RML provides liquidity  to  borrowers  based  on  underlying  assets  of  senior  citizens  for  a variety  of  purposes  like  meeting  expenditure  for  maintenance  of  family,  supplementing pension/other income, medical emergency, home improvement etc; whereas, housing loan product is for purchase/upgrade of house.
- (ii) Under RML, the borrower has the option to receive a lumpsum amount up to 50% of Net Present Value of the property and the balance loan amount is payable through Annuity at regular intervals.
- (iii) The RML scheme attracts 100 % risk weight and hence higher capital provisioning is required to be made as compared to normal Home loan.
- (iv) There is always uncertainty in tenure of RML, as the loan is liquidated only after the demise of the borrower.

With effect from 1.10.2019, the rate of interest on housing loan including RML is linked to external benchmark viz . REPO rate, and benefit of reduction of interest declared is immediately passed on to the borrower, consequent upon reduction of Benchmark rate.

The Financial Institutions including Banks are Board run commercial entities and in a deregulated credit  environment,  all  the  credit-related  decisions  are  taken  by  them  in  terms  of  their  boardapproved policies and extant Reserve Bank of India regulations/guidelines.

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