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.
With India having a rich tradition of respect and care for the elders, there is little need to diligently plan for the retirement. It is generally presumed that the extended family would take care of the financial responsibility for the older generation. But now with globalization (new opportunities around the world) and breaking apart of the joint family system, suddenly older Indians have become more responsible for their individual retirement security.
