Reverse Mortgage – a financial lifeline for senior citizens
Estimates show that India’s old age population will increase to 113 million by 2016, 179 million by 2026, and 218 million by 2030. Life expectancy, currently at 77 years could increase to around 80 years by 2020. With the increasing old age population and life expectancy, Reverse Mortgage introduced by Budget 2007, seems to have a potential market in India. This concept, although new in India is very popular in countries like United States, Canada and Australia, while it is in infancy in Europe and Singapore.
Reverse mortgage is a loan given to senior citizens by converting the equity in a house property into an income stream. The scheme involves the borrowers (senior citizens) pledging their house property to a lender (scheduled bank or HFC) in return for a lump sum or periodic payments spread over the borrower’s lifetime. The home owner is not obliged to repay the loan during his lifetime. On his death or leaving the house permanently, the loan is repaid along with accumulated interest, through sale of the house property. Any excess amount will be remitted to the borrower or his heirs. The lumpsum or periodic payments can be utilized by the borrower as per his needs but not for speculative purposes.
Reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the borrower. Unlike a regular mortgage, the borrower can continue to stay in his mortgaged home during his entire life span without any fear of eviction even after the tenure expires.
Recently, National Housing Bank (NHB), a subsidiary of Reserve Bank of India (RBI), announced its final operational guidelines on reverse mortgage. Following are some of the key features of the scheme:
- The facility will be made available to those above the age of 60 years; Joint ownership with spouse is also permitted even if one of the borrowers is below 60.
- The scheme applies only to self-acquired and self-occupied properties, owned by senior citizens and having a residual life of atleast 20 years.
- The amount of loan would depend on the market value of residential property, as assessed by the primary lending institution (PLI), age of borrower and prevalent interest rate.
- The PLI should ensure that the borrower’s equity in the residential property does not fall below 10% during the tenor of the loan.
- The borrower will not be required to pay any penalty towards prepayment of loan.
- The lending institutions can frame their respective internal policy guidelines but the same should be fully disclosed to the potential borrowers upfront.
- The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
Reverse mortgage is definitely a financial helpline for senior citizens enabling them to lead their lifestyle and meet their consumption needs without being dependent on anyone. It is the social security scheme for the benefit of senior citizens post-retirement. With very few universal old age social security schemes, reverse mortgage might have a potential market. The loan is given without any income criteria at an age where normal loans are not available. Perhaps, the most important advantage being that the borrower retains the ownership title of the house making it all the more popular among Indians who have a natural instinct for own home.
However, on the flip side, traditional joint family system, stronger bequeath motive and widespread undervaluation of real estate properties involving unaccounted money, tax evasion and benami holdings can be major deterrents for the scheme to take off.
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When is this scheme going to be implimented?.
I am 69 years old, for how many years loan I can
get?. I have a property worth about Rs.95 lacs.
How much lumpsum amount I can get/how much monthly loan amount I can get?
Can I know which banks have started giving loans under the reverse-mortgage scheme.I’m based in Mumbai,and,wish to know details of the best terms being offered,currently?Tx.
1. pl give the names of banks/financial institutions which give reverse mortgage loan.
2. the amount of loans should be increased to atleast 5 crores as in most of the metros even the flats cost more than 2 crores.
3. although national housing bank has laid down that senior citizens above 70 years are eligible for loans upto 60% of the market value of the property, the individual banks have prescribed lower limits which is not correct. the limit for such loans should be uniformly adopted by all banks
we are simply leaving our comments. but someone should respond to our comments and queries. otherwise it is of no use. why cant national housing bank which has formulated the guidelines on reverse mortgage loans or some other senior citizens associations in the country answer some of these queries. i hope someone is seeing these comments.
hello is someone watching our comments on reverse mortgage loan. even though my property value is more than 10 crs. one bank is likely to sanction 1.90 crs as rml. but unfortunaately i am asked to give some interim security for about 20 days which is the time taken by one of the banks to give documents held by them for a term loan. since the taking over of documents and tthe receving of documents is a bank to bank matter, the senior citizen should not be asked to provide interim security.
now that the recent budget has clarified that there is no income tax and capital gains tax on the reverse mortgage loan given to senior citizens, the national housing bank should take steps to popularise this scheme by asking the banks to sanction lumpsum payments to such senior citizens who have take over loans pending which were taken in the last 3-4 years. hence the maximum loan amount should be increased to atleast 3 crores. hope all banks would do this soon.
I want to know the terms and conditions for this reverse mortgage. also the name of financial institutions and banks which give such type of loan.
we keep sending our comments - but none to reply to them. such loan schemes are useless unless they are really helpful to those to whom they are made. the maximum amount of loan gicen to senior citizens is pegged at rs.1 crore. most of the senior citizens in metros are having independent houses costing more than rs.5-6 crores and they would have taken loans earlier for their construction/renovation at high rate of interest and emi which they are unable to pay now. hence the maximum amount of loan under this scheme should be increased to atleast 3 crores.
secondly, although the scheme permits lumpsump payments banks do not give lumpsum payments. atleast in cases where the senior citizens have taken earlier loans, the banks should sanction loans of upto rs.3 crores to enable the senior citizens to close the earlier loans and to retain some money for their own living for further years.
thirdly, with the inflation going up, oil prices going up, fuel prices going up, property prices going up, property prices going up, the guidance values for property registrations going up, the construction costs spiralling up and the interest rates on housing loans not coming down, the chances of real estate prices coming down in metros is only a myth.
in view of the above, banks should take a realistic view of the whole situation and help the senior citizens by increasing the maximum amount of loan released and give lumpsum amounts to cover the earlier loan.
hope the national housing bank, the reserving bank of india and the indian banks association will take corrective action immediately
if the banks can waive almost rs.75000 crores for the farmer loans, can they not do atleast this much for the welfare of senior citizens who are prepared to pay interest and have enough security for the loans.