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01.

MORTGAGE LOANS - OVERVIEW


Mortgage loan is a debt instrument which is being secured by collateral of specified real
estate property. These are obtained by a person who is either a real property purchaser, to
raise money to buy the property to be purchased or by existing property holders to raise funds
for any other purpose. Once the loan is obtained the borrower is obliged to pay back it with a
predetermined set of payments. Typically this is a monthly payment which is being
determined by the terms and conditions of the loan scheme. Over a period of many years
(typically 20 years 30 years) borrower re-pay the loan on installment basis till the person
owns the property free and clear.
Mortgages allow the borrowers (individuals and businesses) to make a huge real estate
purchases without paying the entire value of the purchase upfront. These are also called as
liens against property or claims on property. In case of borrowers default during the re-
payment period, the lender has the right to foreclose. In the case of a foreclosure, the lender
(usually a bank) may evict the home's tenants and sell the house and will use theproceedings
from the sale to clear the mortgage debt.
Types of mortgages
Fixed rate mortgages Adjustable rate mortgages
Constant interest for the entire loan period Rate is fixed for an initial term then it allows
to fluctuate with the market rate
Constant monthly payment The initial interest rate is often a below-
market rate, which uses to make a mortgage
seem more affordable than it really is
When market interest rates rise, the If interest rates increase later, the borrower
borrowers payment does not change. may not be able to afford the higher monthly
However when market interest rates drop payments. Interest rates could also decrease,
significantly, the borrower is able to making an ARM less expensive.
secure that lower rate by refinancing the
mortgage
Most fixed-rate mortgages have a 15- or The monthly payments are unpredictable
30-year term after the initial term.

This can be identified as a traditional


mortgage
Table 1 : Types of Mortgages

More over to these types, for sophisticated borrowers, interest-only mortgages and payment-
option ARMs can be mentioned as best options. However these types are considered as less
common types compared to other mortgage schemes.
To carry on the assessment we have randomly selected few leading financial institutes in Sri
Lanka which are extending mortgages to both individual and businesses. Here in this report it
has mentioned the observations related to their major mortgage products which are popular
among the community.
01. Housing Development Finance Corporation Bank (HDFC BANK)

HDFC is a licensed specialized bank (LSB) under the Housing Development Finance
Corporation Act No. 7 of 1997) and falls under the purview of theMinistry of Finance and
Planning. Notably, HDFC is one of the two LSBs authorized to provide housing loans backed
by the borrowers Employee Provident Fund (EPF) savings.
The bank established as a building society in 1984, HDFC was converted into a LSB in 2003
and subsequently listed on the Colombo Stock Exchange (CSE) in 2005. The Bank
predominantly provideshousing loans targeting the low- and middle-income segments.

The guidelines of HDFC Act No.7 had, until 2011, limited the Banks business tothe
provision of housing loans and related activities. Subsequent to amendmentsto the Act, 2
HDFC has widened the scope of its lending activities. The Bank nowdisburses short-term
financing such as gold loans, micro-financing and agriculture loans.

As per RAM ratings for HDFC their Long term rating is BBB. A financial institution rated
BBB has a moderate capacity to meet its financial obligations. The financial institution is
more likely to be weakened by adverse changes in circumstances, economic conditions
and/or operating environments thanthose in higher-rated categories. This is the lowest
investment-grade category.

Short term rating is P3: A financial institution rated P3 has a moderate capacity to meet its
short-term financial obligations. The financial institution is more likely to be weakened by
the effects of deteriorating circumstances than those in the higher-rated category. Thisis the
lowest investment-grade category.

Mortgage Loan Schemes Available in HDFC

1. Kedilla Housing Loan


2. Situ Sevana Life Style Loan
3. Sirisara- Housing Loan
4. ShramaUdana- EPF loan

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Kedilla Situ Sevana Sirisara ShramaUdana
Purpose To build a house To build a This is more To build a
house like a life style house
To add a new part loan to make.
to a house To add a new Sirisara To add a new
/extensions part to a house facilitates part to a house
/extensions internal and /extensions
To complete a external repairs
partly built house To complete a and other To complete a
partly built structural partly built
To obtain water house improvements house
facilities, sanitary like Painting, 3
facilities and To obtain water Waterproofing To obtain water
electricity facilities, and Roofing, facilities,
sanitary Plumbing and sanitary
To purchase a facilities and Electrical facilities and
house electricity Works, Tiling electricity
and Flooring,
To purchase a plot To purchase a Grills, To purchase a
of land to build a house Aluminum house
house Windows
To purchase a compound To purchase a
Redemption plot of land to walls and much plot of land to
build a house more. Moreover build a house
with Sirisara
Redemption one can invest Redemption
on furniture and
on other house
hold utensils.
Qualified Salaried Private Private Members of the
persons employees individuals individuals Employee
Provident Fund.
Business/self Joint applicants Joint applicants
Employed ( Husband / ( Husband /
wife ) wife )
Income earners
from Agriculture Daughter or Daughter or son
son jointly with jointly with
Rental Income father or father or mother
earners mother

Others who can


provide details of
a constant income
from authorized
personnel.

You can apply for


the loan either
individually or

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jointly (with your
spouse, with
parents or with
your children)

Amount From Rs. 50,000/- Minimum From Rs. Up to 75% of


upwards amount of loan 30,000/- your EPF
(Maximum is Rs.1miliion ( upwards balance if you
repayment period 80% of B.O.Q, (Maximum are currently
varies according for construction repayment employed
to age) or 80% period varies 4
property Value according to
Purchase of house: FSV , in age)
70% of the forced cases of
sale value purchase of 100 % of the
house ) total estimated
Construction expenditure.
loans: 80 % of the
forced sale value
of property and
BOQ

Purchase of
Building Blocks
70% within
Municipality
limits and 60%
Pradeshiya Sabha
limits

Security The land on which The land on The land on EPF balance
the loan is which the loan which the loan
invested is invested is invested

Installment If borrower is a If borrower is If you are a If you are a


salaried employee: a salaried salaried salaried
40% of the salary employees: employees: employee: 40%
will be the 40% of the 40% of the of the salary
maximum loan salary will be salary will be will be your
installment your maximum your maximum maximum loan
(within 60% of loan loan installment installment
total fixed installment (within 60% of (within 60% of
commitments) (within 60% of total fixedtotal fixed
depending on your total fixed commitments) commitments)
loan amount. This commitments) depending on
may vary Others: Subject your loan
according to your Others:Subject to evaluation of

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other loan to evaluation of disposable amount.
commitments. disposable income that can
income that can be proved. Others: Subject
Others : Subject be proved. to evaluation of
to evaluation of disposable
disposable income income that can
that can be proved be proved.

Repayment Equal monthly Not given Not given Not given


installments on the
basis of 5
diminishing
capital.
Other Insurance Cover is A Savings A Savings An ordinary
recommended Deposit Rs. Deposit Rs. 500 savings account
Valuation report 500 /- to open a /- to open a should be
should be obtained 'Situ Sevana' Prathilabha opened.
from in-house Savings Savings
valuation officer Account with Account with Processing Fee-
or from an officer the Bank the Bank 1% From the
in the Banks Loan Amount
Panel (maximum
Rs.20, 000.00)
A Savings Deposit
Rs. 500 /- to open Technical Fee -
a Prathilabha Rs.500.00-Rs.1,
Savings Account 000.00
with the Bank
For the early
settlement of a
loan a
Commitment
fee of 2% to 4%
of the loan
amount will be
charged.

Table 2: Mortgage Loan Schemes in HDFC

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Interest Rates

Loan Amount EPF % Mortgage%


Loan scheme
Agricultural sector Upto 200,000 14.50% 12.00%
200,001 - 500,000 14.50% 12.00%

Other sectors Up to 500,000 14.50% 12.00%


Over 500,000 14.50% 12.00% 6

Table 3 : Interest related to Mortgages in HDFC

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02. COMMERCIAL BANK

Commercial bank which is awarded as the best bank in Sri Lanka for the consecutive 16th
year has a history which runs back to Pre- independent era. The bank has been established in
1920 which is the British colonial era, a period when the trade and commerce is emerging
and thriving.
In 1969 it has become an independent entity and with their excellent service delivery has
been able to continue to this day. This is the only Sri Lankan bank to be among the Top 1000
Banks in the World by the Banker Magazine - UK, consecutively in 2011, 2012 and 2013. In
accordance to Fitch Ratings thisan AA(lka) Awarded bank in Sri Lanka.
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Loan Portfolio
The loan portfolio of the bank is consisting with the following types

Personal loans gold loans

Loans

Leasing home Loans


Domestic currency
Foriegn currency

Basically commercial bank is offering mortgage loans both in domestic currency and foreign
currency. Their basic features are as follows.

Domestic currency loan Foreign currency loan

Purpose i. Purchasing a house, apartment or land


ii. Completing a partially built house
iii. Building a house
iv. Renovate, extend or complete a house
v. Paying off an existing home related loan

Eligibility Borrower should have to have a Borrower should be a Sri Lankan,


criteria regular monthly income bound employed abroad who is in a position to
to a minimum of LKR 25,000, service loans in foreign currency.
individually or jointly with Should have been continuously employed
spouse. overseas for a minimum period of 2 years.
Basically the borrower should More over should have a contract for
have to have a sufficient future employment for a minimum period
income to meet the obligation. of 1 year.

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Loan Amount A variable depending on the A variable depending on the income of
income of the borrower. the borrower.
Typically LKR 500,000 up to Can obtain from USD 25,000 up to USD
LKR 50 Million. 100,000 or equivalent in other currency.
If the requirement is more than Depending on case by case basis loans
the maximum amount exceeding USD 100,000 would be
negotiation is possible. considered.
Loans available in Sterling pounds, Euro,
Australian dollars, Canadian dollars.
Repayment Repayment period is a variable Loans are granted for maximum of 5
depending on the age of the years period.
borrower. Monthly installment should be paid in 8
Typically can negotiate up to 20 foreign currency on a reducing balance
years. basis.
Two modes of payments are
possible.
i. Equated monthly
installments- here the
capital plus interest
payment is a fixed sum.
ii. Fixed monthly
installment- here the
capital payment is fixed
amount and the interest
is on the reducing
balance.

Security/ The real estate that is subject to The real estate that is subject to the loan
Collateral the loan
Table 4: Loan Scheme in Commercial Bank

Applicable interest rates:-Home loans

Fixed rate 10.5% to 12%


9.5%
Floating rate
Privileged home loans 9.5% for the first 5 years. There after AWPLR (average
weighted prime lending rate) + 2%

Home loans for 1% less than the published fixed and floating rates.
professionals
Table 5 : Prevailing Interest rates in Com Bank Mortgages

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03. SAMPATH BANK PLC

Sampath Bank is a one of leading commercial bank in Sri Lanka Which was incorporated in
1987 under the name of "Investment and Credit Bank Limited" in 1987 .Sampath Bank is the
first bank to introduced ATM cards in Sri Lanka which was famous as SET and also they are
the first bank in south Asia to introduced Debit Card also in 1997.Sampath Bank has made lot
of new banking inventions through their advanced technology. They are the third leading
private bank in Sri Lanka in terms of total assets. One of their main income sources is
extending loans to business sector and individuals. 9

Sevana Housing Loan

Purpose To purchase a house or construct a house


To purchase a bare land and construct a house for residential
purpose
To complete construction of a partially built house
To Renovate, modify or extend an existing house.

Eligibility Be a Sri Lankan citizen


Have a regular net monthly income in excess of Rs. 60,000/-
individually
Loan amount Variable depending on the value of the property and the borrowers
repayment ability
- To purchase a house or to purchase a land and construct a
house, can borrow up to 70% of the total cost of the
housing project.
- To Extend or renovate your house, you can borrow up to
75% of the bill of quantity (BOQ) value

Security / The mortgage over the same property or another immovable property
collateral which has to be acceptable to the bank mortgage protection policy will
be to guarantee repayment of loan outstanding in case of default.

Repayment - Maximum period of 25 years or until the borrower reaches


the age of 60 years.
- Monthly installments of the loan should not exceed 40% &
the total deduction should not exceed 60% of the total
monthly income.
- Six months grace period will be allowed for repayment in
case of construction. Only the interest should be paid
monthly during this period.

Table 6 : Mortgage schemes in Sampath Bank PLC

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The above Sevena Housing loan is also provided to the Sri Lankan whose work in foreign
countries and maintained a NRFC account in the bank. All terms and conditions are same as
above mention but there are some extra requirements and conditions needed to obtain this
loan. For instance when consider about the collateral, bank take the lien of the NRFC account
in case of default of customer.And also borrower need to submit the copy of appointment
letter, details regarding the position of the job and remaining contract period, copy of
passport and visa. 10

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04. HATTON NATIONAL BANK PLC

Hatton National Bank is also one of leading commercial bank in Sri Lanka which was
established in 1970 by taking over Hatton bank and the Kandy and NuwaraEliya branches of
Grindlays Bank. HNB also generate income by lending money to their customers. One of
major loan mode of the bank is the housing loan that they offer known as Shanthi Housing
loan.

Shanthi Housing loan


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Purpose To purchase of bare land for construction of a house
To purchase of a house and property or apartment
To construction of a house on land owned by the applicant
For the completion of a partly constructed house
For renovation or extension of an existing house
Eligibility -Those with a regular monthly income, individually or jointly with
spouse
- Public and private sector employees, professionals, businessmen or
businesswomen
- Sri Lankans employed abroad

Repayment Range from a minimum of 5 years to a maximum of 25 years


depending on the age of the proposed borrower and place of
employment.
Borrower can decide whether he is opting for the fixed rate or
variable rate mortgage. If select the variable rate, rate will be based
on the going market rate which is subject to a quarterly review.
Also bank will provide GRM (graduated rate mortgage) for the
customers. Loan repayment will be done in LKR
Security / collateral the mortgage over the same property or another immovable property
which has to be acceptable to the bank.
Bank is obtaining the right of the First mortgage when a loan is
obtained to build a house in a mortgage land.

Other features Loan approval within 10 days


Grace period of up to 12 months available during construction
Loans in LKR as well as foreign currencies
Mortgage protection cover and fire insurance at competitive premium
The unique step-up loan repayment scheme
Early loan settlements entertained
Joint Loan facilities for family members

Table 7: Mortgage schemes in HNB

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There is also another type of Shanthi housing loan which is named as ShanthiEkamuthu
Housing loan. It is like a two borrower loan where parent and adult children can settle the
loan together. In here parent take the initial loan and build the foundation for a luxury house.
Then the adult child who will owns the house can take the responsibility for the balance
installment of the loan.

Shanthi Foreign Currency housing loan is another type of housing loan which provided for
the Sri Lankan who work in overseas. They can obtain the loan in currency which is similar
to the NRFC account. Repayment of the loan has to be made in LKR. Bank takes the lien of
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the NRFC account if the borrower makes any default

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05. NATIONAL DEVELOPMENT BANK- NDB

Providing Mortgage Financing is a core product in the NDBs product portfolio. They offer
several categories of mortgage schemes to their customers.
Housing Loans are the main products NDB offers under their mortgage schemes & they
offer several types of housing loans to their customers & for the customer convenience.
We have classified mortgage schemes in NDB as per below & described accordingly.

Home loans
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Viyana Home loan

Housing loans

Loans to self
employed

NDB Home loans


Mortgage Schemes
Max
of NDB

Education loan

Other Loans Other property


loans

Vehicle Loan

NDB Home Loans


NDB home loan is the ideal product to choose if you are looking for a loan to construct,
ready purchase, add on an extension, and improve your home or even to purchase a land of
your own to build a house.
With a maximum repayment period of up to 20 years based on your date of retirement at a
loan amount starting from a minimum of Rs. 100,000/- and reaching a maximum to suit your
budget, age and repayment capacity.
People have the choice of structuring the loan to suit their repayment capacity and repay the
loan by means of a pay sheet deduction carried out by their employer or any other mode of
payment acceptable to the bank.

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With equated loan installments and the ability to mortgage the property being purchased,
used for construction or provide any other security acceptable to the bank an NDB home loan
is the correct choice for you.
NDB Home loan can be obtained for following purposes.
1. HOME Construction

If a person already owns a land on which he or she wish to build their dream home NDB will
assist them by providing 100% of the Construction Cost, subject to a maximum of 75% of the
banks valuation of your property.
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2. HOME purchase

Anyone wish to purchase a home can turn to NDB home loan and get up to 80% of the
banks valuation of the house & property as a loan to purchase your future home.
3. HOME extension

NDB home loan assist home extension too. Can get the funds needed (100% of the
Construction Cost) subject to a maximum of 75% of the banks valuation on the property, to
suit requirement.
4. HOME improvement

Can get NDB home loan and get up to 100% of the Improvement Cost, subject to a maximum
of 75% of the banks valuation of the property to add that extra bit of personal touch that will
make home improvement.
5. Land purchase loan

NDB with its home loan options provides the means to buy lands, subject to a maximum 70%
of the banks valuation of the property.
6. NRS loan

NDB offers Non Resident Sri Lankans, with permanent employment contracts abroad and
earning a minimum salary equivalent to Rs. 50,000/-, and opportunity to obtain an NDB
home loan for the purchase, construction, or improvement of a house. People can obtain a
loan starting from a minimum amount of Rs. 500,000/- subject to a maximum repayment
period of 5 years.
Viyana Home Loan

Viyana home loan scheme comes as a joint initiative between NDB and the Employee Trust
Fund Board.

For a resident of Sri Lanka with 5 years of uninterrupted ETF membership and currently
employed at an organization that is pre-cleared/approved by NDB, the home loan scheme
offers a range of loan options from ready purchase to construction, from adding an extension
to home improvement, for a maximum of Rs. 1,500,000/-.

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Exclusive Interest rates for ETF Members
Up to Rs. 250,000/- 10.50%
Rs. 250,000 - 750,000 11.50%
Rs. 750,000 - 1,500,000 12.00%

(*Only ETF members with 5 years of contribution to the ETF and a balance stipulated by the
ETF are eligible to apply.)
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NDB also provides the flexibility of structuring the loan up to a maximum period of 20 years,
depending on the date of retirement at a very concessionary interest rate (subject to
government taxes) with the loan being secured by the mortgage over property in favors of
NDB.

People have the convenience of the payment being deducted from your pay sheet, based on
the undertaking of their employer and their selves. Thereby eliminating the hassle associated
with repayment.
And also accepts requests for loan amounts greater than Rs. 1,500,000/-, at the normal
lending rates of NDB.

Loans to self employed

NDB has a housing loan scheme that will cater to the self-employed, looking for a loan for
the purpose of ready purchase, construction, extension, improvement of a house or to top-up
an existing housing loan.

With an attractive interest rate and with a minimum loan amount from Rs 500,000/- this
scheme offers the borrower the ability to match his income with the repayment by giving him
greater flexibility and safety.

A further boost would be the period of repayment, which can be extended up to a maximum
of
10 years with equated installments.

Has the ability to mortgage the property itself and other terms & conditions applicable &
differ according to the different scenarios.

NDB Home Loans Max.

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This loan is specially designed for the existing home loan clients of NDB. Any individual
who wishes to convert an existing housing loan from another financial institution to NDB
shall also be eligible up to the existing leeway. It can be obtained for any legitimate purpose
at a competitive interest rate.

The loan is granted for varied purposes including buying a vehicle or property, improving or
expanding your house, financing your childs higher education, wedding expenses, overseas
travel and virtually any other legitimate reason of your choice.
75% FORCED SALE VALUE - HOME LOAN OUTSTANDING = NDB HOME LOAN MAX
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NDB Home Loan Max affords the opportunity to maximize the existing home loan
with NDB enabling to fulfill peoples lifes expectations while repaying their existing
home loan. Facilities are flexible and tailor-made to suit the requirements depending
on the repayment capacity.
Any Sri Lankan citizen between the ages of 18 & 55 years with a fixed income
(permanent employment), self-employed or with a professional practice is eligible for
this Loan. The loan can also be obtained by non-resident Sri Lankans employed
overseas, subject to exchange control regulations. And can be obtained individually or
as a joint loan with spouse.
The Loan amount will depend upon each individuals repayment capacity up to a
maximum of LKR 10 Mn.
Loan can be secured through the same property already mortgaged to the bank for the
home loan.
NDB Home Loan Max will be offered at very competitive interest rates.
A mortgage protection cover needs to be obtained to protect the dependents and ease
their burden in the event of an unlikely death or permanent disability of the
mortgagee.

Education Loan

NDB offers Mortgage Backed Educational Loans to overcome financial obstacles that the
youth of today are faced with. The Bank continues to offer Educational Loans that are
designed especially for local and foreign educational needs.

Education loan can be taken by the parents on behalf of their children or even by close
relatives as well as the potential students who are in employment. A parent/relative or
potential student can also apply for joint loans, giving them further flexibility to achieve their
lifelong dreams. Property of parents can be mortgaged in this case.

Mortgage Backed Education Loans can be obtained up to Rs. 7.5 Million and can be taken
with a repayment period of up to 7 years. Furthermore, tailor-made solutions are offered in

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line with the repayment capacity with at-your-doorstep service. The applicant should be
confirmed in his/her current job and be earning a salary of above Rs. 30,000/- per month.
Sole-proprietors and those in partnership (for over 5 years) are also entitled to apply for
Mortgage Backed Educational Loans.

Vehicle loan Schemes

Mortgage can be taken over the vehicle to be purchased. Ownership documents to be handed
over to the bank.
There are applicable terms & conditions applicable can be can be negotiated with the bank
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accordingly.
These loans are most preferably offered for the top government officials, doctors, engineers
and for the people who are permanently employed at reputed well established companies.

Mortgaged back loans to purchase other properties

If a person needs to purchase machinery or any other property, they have the ability to go &
talk with the bank & make necessary arrangements. They have the ability to mortgage the
property to be purchased & or any other security as per the requirements. Bank may apply the
term & conditions accordingly. Requirement for a guarantee will depend on the applicant.

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06. NATIONAL SAVINGS BANK- NSB

i. Ge-Dora Housing Loan Scheme


This is one of the major types of loans offered by NSB bank. Under this loans are provided
for different types of needs as follows.
To construct or purchase a house
To purchase a block of land to build a house. 18
To complete construction of a new house or for extensions/repairs to an existing
house.
To repay a loan obtained from a recognized financial institution for housing purposes.
A permanent employee, an income-tax payer, an employed abroad and a self-employed can
apply for these mortgage loans. The limit offered for a person depends on the repayment
capacity, age, value of the property and the purpose of taking the loan.
The rate of interest applicable will vary according to the quantum of loan and the prevailing
market rate of interest .We assure you that our interest rate is comparatively low, fixed/
floating and always reasonable.Interest is calculated on the reducing balance method.
The significance of this mortgage type is that this enables the payer to pay only the interest
potion of the loan during the first5 years. Capital payment will be done only after the period
of five years. And through this a higher loan amount is offered.
ii. Ithurum Niwasa
The speciality of this mortgage type is that it does not need the customer to submit salary
slips or any income tax returns to support his income. As long as the an income level is
acceptable enough the loan will be offered.
A person can qualify for a Housing Loan by opening an IthurumNiwasa Housing Loan
Savings Account at any NSB branch island-wide and making a monthly deposit of a sum
between Rs. 5000/- and Rs.25.000/- in multiples of Rs. 500/- for a continuous period of 12
months.
A person can obtain a loan from Rs: 90,000/- to a maximum of Rs: 1,000,000/- depending on
the monthly deposited amount to IthurumNiwasa account.
iii. Express Housing Loan
This is express service where loan can be obtained within a short period of time. There are
few options operating which are being shown as follows.
Option 1
This option is where the loan is being offered within 4 working days. Minimum charge for
the service is 12500 and loans are being granted up to the amount of 5 million under the
interest rate of 1%. Above 5 million loans can be obtained at under a rate of additional 0.5%.

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Option2

Up to the level of 5 million at a rate of 0.5% additional loans can be obtained. If the loan
amount is more than 5 million 0.25% interest is charged for excess amount. This service of
mortgages can be offered by any NSB loan centre or the credit division at head office.

The speciality about this type of mortgage is, we will be required to obtain a Mortgagees
title insurance in respect of all loans disbursed through the Express Service.

In case of loans for purchase of a property, transfer deeds will have to be executed by the 19
Legal Officers of the Bank at a fee which will be subject to the loan amount.
iv. Rata Ithuru Housing Loan

National service bank facilitates housing loans with a host of special concessions to enable
Sri Lankan migrant employees abroad to obtain housing loans.

Loans are offered for different purposes for the customers. Such as

To construct or purchase a house of your own.

To purchase a block of land to build a house.

To complete construction of a new house or for extensions/repairs of an existing


house.

To repay a loan obtained from a recognized financial institution for housing purposes.

Below mentioned persons can obtain the loans

Permanently employed abroad and in receipt of a monthly salary.

Employed abroad on contract basis and in receipt of a monthly salary.

Self-employed abroad and in receipt of a monthly income.

These persons are required to open a Rata Ithuru savings account before applying for a
housing loan and remit a sum equivalent to the loan installment to be credited to the account,
before obtaining the final loan installment.

The size of the loan amount offered will be decided based on the following factors.

Nature of the applicants contract of employment and his repayment capacity.

Age of the applicant.

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Value of the property to be mortgaged.

Purpose of the loan applied.

The normal time period allowed to repay the debt is 5 years. But this would be changed to an
extent of 10 years based on the nature of the contract. The significance under this it is
necessary to offer a security in order to obtain a housing loan. The asset can be the house/land
to be constructed / purchased or the house to be completed/repaired/extended, or another
immovable property.

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.

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07. STATE MORTGAGE AND INVESTMENT BANK (SMIB)

State Mortgage and investment bank could be identified as one of the major banks which deal
with the mortgage products in Sri Lanka. Being a special bank, they possess the capabilities
and resources to specialize in mortgage products within the country.
Categories of the Mortgage products
When focusing on the mortgage products in SMIB bank, there are three segments of
mortgage products which are commonly used by the bank namely,
Government Loans
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Property Mortgage Loans
Property mortgage personal loans

Government Loans
As the name itself implies, government loans are given to government sector employees as a
monthly installment loan. The loan should be applied via the department head of the
applicant and the loan must be pre approved by the said department head prior to be
forwarded to the bank. The monthly due installment would be straight away deducted from
the monthly salary of the client. One of the special features of this loan is that it can be
obtained only once in the service period for an government sector employees. The bank
would require a clear deed of a property to be pledged against the loan and the bank would
assess the credit worthiness of the applicant mainly via the CRIB reports.
Property Mortgage Loans
Under this product, the installments could be paid through a standing order and the total
deductions should be less than 60% of the gross salary of the client. The bank would required
a clear deed to be pledged for the loan and the loan applicant must necessarily be a person
below the age of 60 years. Spouses and parents and single children could obtain a joint loan
and the loan would be released for three times.

Property Mortgage personal loans


This loan differs from the property mortgage loan which is discussed above because the
installments of the loan would be deducted from the salary of the client and no standing
orders would be accepted by the bank. The salary of the borrower should be certified by the
department head or the head of Finance of the applicant via a written document. Since the
installments would be deducted from the salary, the bank would require pay sheets of the
borrower prior to releasing the loan. The loans would be given for a maximum period of 5
years and the full loan amount would be released at once to the client. Total deductions
would be for 60% of the gross income of the client.

Purposes

FIN 4328: Real Estate Finance


The bank would release a mortgage loan for various reasons and following are identified as
the most popular reasons for which the management would release loans.
To Construct or purchase a house
For extensions of an existing facility (add a new part to the existing building)
To buy a block of land with the intention of constructing a house / building
To complete the construction of a partially build building
To redeem an existing loan which the client has obtained from a recognized financial
institution for housing purposes 22
To purchase machinery and equipments for agricultural reasons
To satisfy the financial requirements of Small and Medium entrepreneurs
To purchase a vehicle which is intended to be utilized in transport and/ or tourism
industry

Nature of the parties who can apply for a mortgage


The bank extends mortgage facilities for individuals who have a proven record of their
income and the following is a list of individuals who would be considered to extend a
mortgage loan by the bank.
Employees with a fixed salary
Entrepreneurs/ Self employed individuals
Individuals who are employed in a foreign country
An income tax payer
Migrant employees (they need to be registered with Sri Lanka Bureau of Foreign
Employment)
Rental income earners
Any individual with a steady stream of income which could be certified by an
authorized personnel

Loan Amounts
The loan amount mainly depends on the value of the collateral pledged by the individual and
on the purpose of the mortgage loan.
However the minimum amount that would be extended to the borrowers under a mortgage
loan is Rs. 100,000.00
For a purchase of a house or a building the bank would provide a mortgage up to 65% to 75&
of the forced sale value of the said building.

FIN 4328: Real Estate Finance


For a purchase of building blocks, the bank extends 65% to 75% of the forced sale value
within the municipality limits.
Finally, for a mortgage loan undertaken for construction purposes, the bank would provide up
to 65% to 75% of the completion value of the property.

Insurance cover
The bank would prefer a loan protection insurance cover for the mortgage loans extended to
the borrowers. While such an insurance cover provides a definite protection for the bank, it
also acts as a safety measurement for the borrower. Such an insurance cover would release 23
the dependents of the borrower from the repayment of the mortgage loan in the event of the
death of the original borrower. The bank has not made it a mandatory requirement for the
mortgage loan borrowers to subscribe for such an insurance cover but the management
encourages the clients to obtain it. This is a single premium loan.

FIN 4328: Real Estate Finance


IN CONCLUSION
When consider the real estate purchases mortgage loans are very popular among all the
community. As per the theories known to all there are different types of mortgages can be
identified. However when consider the real picture the things might be little different from
the theoretical picture.
As far as the above mentioned observations considered it is proven that all most all financial
institutions, more significantly banks, offer different types of mortgage loan schemes to their
customers. As can be observed all most all the schemes are offered to fulfill very similar
purposes, unless it is an exceptional situation.
24
All the mortgage providers be more vigilant to use a competitive rate and also in some
scenarios its shown that they offer some customized rate options to their customers based on
different considering points.
It was known that mortgages can be classified as to fixed rate and adjustable rate mortgages.
When consider the above loan schemes it was evident that all most all lenders offer both the
types with additional features. All the features both the types possess can be seen in all the
observed loan schemes apart from the fact that they are being offered by different financial
institutes.
More over to that its been observed that both the private sector institutions and state
institutions competitively offer mortgages. However there is a trend that larger portion of the
community relies on the state institutions with regard to the mortgages and it is known that
significant portion of the mortgage loan market is held by the state banks of Sri Lanka.

FIN 4328: Real Estate Finance

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