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Home Mortgage Risk: A Case for Insurance in India



Housing mortgage finance in India is constrained by the maximum loan-to-cost ratio and installment income ratio conditions imposed by housing finance companies. The typical reason for this behaviour is that the market for the sharing of risk in mortgage lending is not yet fully developed. Mortgage insurance plays an important role in developing this market. The objective of this paper is to present a case for mortgage insurance market in India. This paper develops a mortgage premium structure framework in which mortgage insurers charge an insurance premium that equates losses to revenue. This paper also models mortgage termination due to prepayment and defaults. We contend that the termination of mortgage in housing is not as `ruthless?as OPM theory would suggest, primarily because households are not financiers in the `stricter sense? We have used the Cox proportional hazard model to analyze prepayment and default of mortgage behaviour in India. The results indicate that financial concerns (like the option price, loan to value ratio, and monthly principal and interest to income ratio) are important determinants besides household characteristics. The cumulative prepayment or default probabilities from these models are used in the estimation of the insurance premium structure.

Suggested Citation

  • Piyush Tiwari, 2001. "Home Mortgage Risk: A Case for Insurance in India," International Real Estate Review, Asian Real Estate Society, vol. 4(1), pages 57-79.
  • Handle: RePEc:ire:issued:v:04:n:01:2001:p:57-79

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    Cited by:

    1. Piyush Tiwari & Yoko Moriizumi, 2003. "Efficiency in housing finance: a comparative study of mortgage instruments in Japan," International Journal of Housing Policy, Taylor & Francis Journals, vol. 3(3), pages 267-288.
    2. (David) Ho, Kim Hin & Su, Huiyong, 2006. "Structural prepayment risk behavior of the underlying mortgages for residential mortgage life insurance in a developing market," Journal of Housing Economics, Elsevier, vol. 15(3), pages 257-278, September.

    More about this item


    Default; Home mortgages; India; insurance; mortgage prepayment; proportional hazard;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services


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