|Reverse Mortgage India |
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|Reverse Mortgage in India still at an infancy stage. The reverse mortgage came into existence in the UK during the crash of 1929. Having | | |
|evolved genetically from the developed countries and mainly the USA, reverse mortgage is a scheme formulated to benefit the senior | | |
|citizens the most. Although applicable for the younger people also, 'reverse mortgage loan products for senior citizens' is the basic that| | |
|every bank of financial institution follows. | | |
|Reverse Mortagage Information | | |
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|Reverse mortgage information that will help you in understanding the concept of reverse mortgage loan is listed below. | | |
|Definition Of Reverse Mortgage:Reverse mortgage is a Home Loan product designed for the senior citizens by converting their fixed asset - | | |
|their home or in banking terms their equity in any house property into an income channel without having to liquidify your equity in case | | |
|of any requirement. | | |
|The Dealing Parties: Reverse mortgage loan involves two parties, the borrower - the senior citizen and the lender - any bank or housing | | |
|finance institution. | | |
|Security for the Lender: The borrower pledge their home property to a lender | | |
|Payment of the Loan to the Borrower: In return of the house property pledged, the borrower gets a lump sum amount or periodic payments | | |
|spread over the borrower's lifetime that can be utilized by the borrower (senior citizen) as per needs and not for speculative purposes. | | |
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|Repayment of Reverse Mortgage Loan: The homeowner and now the borrower will not be required to repay the loan during his lifetime. On his | | |
|death or leaving the house permanently, the loan along with the accumulated interest is repaid through the sale of the property pledged. | | |
|Home Value Falling Short: In case the accumulated interest and loan amount is larger than the value of the mortgaged property, the | | |
|mortgage loan is capped at the value of the home equity only and the lender is the party at loss. | | |
|Home Value in Excess: Any excess amount by the sale of the property is duly remitted to the borrower incase of permanent leaving of the | | |
|house or his heirs in case of the death of the borrower. | | |
|Freeing the property from reverse mortgage: In case you get an additional income and accumulate an amount to repay your loan, you can free| | |
|your property in mid term and can also apply for re-reverse mortgage if required on the same property. | | |
|In the usual mortgage loan, the borrower begins with a large loan and lower equity in his house. In reverse mortgage however, the borrower| | |
|has a very high equity in his house and a non-recourse loan secured by the home property. In the usual mortgage system, as the regular | | |
|mortgage payments are made the outstanding loan decreases and the house equity increases. Reverse is the case in reverse mortgage, the | | |
|loan amount increases with time and the home equity decreases with time. | | |
|Reverse Mortgage Pros and Cons | | |
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|The reverse mortgage pros and cons should be measured carefully before subscribing to it. Since, the bulk of the savings for the average | | |
|Indian are typically locked away in a house or other property at the time of retirement, and in case of requirement it cannot be encashed | | |
|except by selling the home or moving out. This is where reverse mortgage comes as an answer. | | |
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|Taking the usual mortgage loans in lieu of your home as a security will not be feasible in the age above 50 as the repayment of the loan | | |
|is not feasible. The Banks And Financial Institutions also won't be of any help in case of no income source. This is where the house | | |
|property proves as an asset and brings in reverse mortgage that allows you to be the home owner as long as you live. Home ownership is an | | |
|area most Indians are sensitive about and reverse mortgage entitles you your house throughout your remaining life. | | |
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|According to demographic projections, reverse mortgage loan products could be a hit among the metros and also in areas like Kerala, Tamil | | |
|Nadu, Goa and Chandigarh in India. With hardly any old age social security schemes and financial helplines, reverse mortgages have a | | |
|potential market. Loans are available in the form of reverse mortgage without any income criteria at an age where normal loans are not | | |
|available. Reverse mortgage for senior citizens is a social assurance post-retirement. | | |
|Reverse Mortgage Lenders in India | | |
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|The major reverse mortgage lenders in India or the banks and financial institutions providing reverse mortgage in India include: | | |
|National Housing Bank (NHB) | | |
|Dewan Housing Finance Limited (DHFL) | | |
|State Bank of India (SBI) | | |
|Punjab National Bank (PNB) | | |
|Indian Bank | | |
|Central Bank of India | | |
|Reverse mortgage is a way of getting the benefits of your home equity by retaining the home ownership and also without having to make any | | |
|repayments. The senior citizens in India will definitely find reverse mortgage a solution for their financial needs after retirement and | | |
|help them in regaining their feeling of independence. | | |

Method Of EMI Calculation

|SBI reverse mortgage loan @ 10.75% |
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|BS Reporter / Mumbai October 10, 2007 |
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|State Bank of India (SBI) will launch a new product - SBI Reverse Mortgage Loan - for the benefit of senior citizens on October 12. |
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|Senior citizens can avail of loans, released in monthly or quarterly instalments or as a lumpsum payment at the beginning, against the |
|security of their self-acquired, self-occupied houses. The loan need not be repaid by the borrowers during their lifetime, and they will |
|also continue to stay in their houses during their lifetime. |
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|"Thereafter, an option is available to the legal heirs to repay the bank loan and redeem the house property. If this option is not |
|exercised, bank will sell the property and liquidate the loan. Surplus, if any, will be passed on to the legal heirs,"an official release |
|issued by the bank today said. |
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|The loan carries a fixed interest rate of 10.75% p.a. subject to reset at the end of every five years along with revaluation of security |
|and re-adjustment of loan instalments, if necessary. |
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|For a loan of Rs 1 lakh, the monthly payment to the borrower on a 10-year loan is Rs 468 and on a 15-year loan, it would be Rs 225. |
|Similarly, for a loan of Rs 1 lakh, the quarterly payment to the borrower for a 10-year loan would be Rs 1,423/- and on a 15-year loan, it |
|would be Rs 687, the release added. |

SBI launches SBI Reverse Mortgage Loan | INRnews

Mumbai, India, November 01, 2007 - Leading bank, SBI has launced a reverse mortgage loan product designed for the benefit of senior citizens, above the age of 60 years.

They can avail loans, released in monthly or quarterly instalments or as a lumpsum payment at the beginning, against the security of their self-acquired, self-occupied houses. The loan will be given jointly if the spouse is alive, provided he/she is above 58 years of age.

The loan need not be repaid by the borrowers during their lifetime. They will also continue to stay in their houses during their lifetime. Thereafter, an option is available to the legal heirs to repay the Bank loan and redeem the house property. If this option is not exercised, Bank will sell the property and liquidates the loan. Surplus, if any, will be passed on to the legal heirs.

The loan is available at all branches of SBI. The loan carries a fixed interest rate of 10.75% p.a. subject to reset at the end of every 5 years along with revaluation of security and re-adjustment of loan instalments, if necessary. For a loan of Rs. 1 lac the monthly payment to the borrower on a 10 year loan is Rs.468/- and on a 15 year loan it would be Rs.225/-. Similarly for a loan of Rs.1 lac, the quarterly payment to the borrower on a 10 year loan is Rs.1,423/- and on a 15 year loan it would be Rs. 687

How does Reverse Mortgage Work?

In this scheme, once you pledge your house for the ‘reverse mortgage’, the bank will arrive at the value of the house after carrying out its due diligence. After creating the room for interest costs and price fluctuations, the bank will disburse the balance amount to you depending on the payment option that you choose. With every payment that the bank gives you, your equity in the house decreases. This line of credit is open, typically for 15 years.

Read: How Rs 1 lakh grows to Rs 50 lakh in 25 years

Even after the tenures you can continue to stay in your house. Only if you leave the property permanently, or in case of death, the lending institution will sell the property, and from the proceeds it will take the amount that is payable by you to the bank; the balance will be distributed to your legal heirs. The bank will also conduct period valuation of the property, typically after five years, to ensure that the value of the house is more than the total amount payable by you.

As per the Wikipedia Definition, A reverse mortgage (or lifetime mortgage) is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves.

What are the features of this loan?

The draft guidelines of reverse mortgage in India prepared by the Reserve Bank of India have the following features:

• Any house owner over 60 years of age is eligible for a reverse mortgage. • The maximum loan is up to 60 per cent of the value of the residential property. • The maximum period of property mortgage is 15 years with a bank or HFC (housing finance company). • The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion. • The revaluation of the property has to be undertaken by the bank or HFC once every 5 years. • The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability. • Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.

What happens after the death of one or both of the spouses?

If one of the spouse dies, the other can still continue living in the house. If both die, the bank will give their heirs’ two options; either settle the overall outstanding loan and retain the house, or the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs.

Why is this scheme not popular?

Recent reports seem to indicate that a very small percentage of senior citizens only seem to have taken advantage of the facility since its coming into action. This could be perhaps because better awareness had not been created about the product.

Secondly, the Indian banking industry caps the available loan amount at Rs 50 lakh (Rs 5 million), instead of providing for an equitable percentage of the property’s value, and limits the loan period to a tenure of 15 years.

The product is still evolving and may take on new dimensions depending on how the banks wish to present its consumer appeal.

Which banks provide ‘Reverse Mortgage’ in India?

Some financial institutions that provide the scheme in India are Dewan Housing Finance, State Bank of India, Punjab National Bank, Bank of Baroda, Central Bank of India, Union Bank of India, LIC Housing Finance, Indian Bank, Andhra Bank, Corporation Bank, Canara Bank. Senior citizens are eligible for the scheme.

What are your views about ‘Reverse Mortgage’ Scheme? Have you taken the advantage of this option, and if not, are you planning to do it in future? Please put your valuable inputs in the Comment box below

MUMBAI: State Bank of India (SBI) has become the first bank to introduce a reverse mortgage products for senior citizen after guidelines were issued by the National Housing Bank earlier this year.
The loan is for those above 60 years and can be availed in monthly or quarter installments or as a lumpsum payment at the beginning against the security of their self-acquired and self-occupied houses. Joint loans are possible if the spouse is over 58.
The loan will soon be made available at all branches of SBI. The loan carries a fixed interest rate of 10.75% pa, subject to reset at the end of every five years along with revaluation of security and re-adjustment of loan installments, if necessary.

Reverse Mortgage Loan (RML) scheme launched with much fanfare in 2007 by the UPA Government has failed to take off in a big way due to variety of factors. Main reason was the lack of proper packaging and information dissemination to the target group. Considering RML was described as a saviour to the growing population of senior citizens — whose number is set to rise up to 140 million by 2016 in India — is the scheme still waiting for the much needed momentum to take off.

In simple terms, RML is a loan against your home that you do not have to re-pay as long as you live in that place. The concept is new in India and it allows senior citizens to unlock the value of their most valuable asset (their home) by mortgaging it. As they keep getting money from the bank for a pre-decided period, they can continue to live in the house until death. It helps them benefit from the long-term appreciation of their house too as a tangible asset by turning it into a source of much needed funds, post-retirement.

How it works

In a reverse mortgage scheme, a bank offers a loan based on the value of the property and the borrower gets the money in monthly/yearly installments and upon borrower’s death, the bank takes ownership of the property. Though the amount of loan depends on the value of the property, banks consider 40-90 per cent of the property value for giving monthly or lump-sum payments under RML. They have an upper limit (usually Rs 1 crore), which includes the interest accrued on reverse mortgage loan you take. While the upper limit of the loan amount is Rs 1 crore, the maximum amount that a borrower can get after accounting for interest rates is only Rs 40 lakh.

Even after the loan is obtained, the property is valued by the bank at regular intervals of three to five years. If the valuation of your property increases, you are given the option of increasing the quantum of the loan. In a rare case if the value of property falls, the bank can revise the payments accordingly. If the borrower does not accept the revised terms, no further payments are made by the bank and interest at the rate agreed before the review will continue to accrue on the outstanding amount of the loan.

Selling with consent

During the mortgage period one can also sell the property but only with the Bank’s approval and money will come to you only after the bank deducts its accrued amounts. On the death of the second of the two spouses, the heirs to the property can decide to either redeem loan (for keeping the property) or sell the property and take the residual amount that may accrue. Should the sale proceeds be lower than the accrued principal plus interest, the bank takes the loss.

Here is an illustration to understand RML a tad easier: A 60-year-old retired individual opts for SBI’s reverse mortgage plan on his house which is valued at Rs 10 lakh. Then the maximum loan amount sanctioned by SBI will be Rs 9 lakh on a reverse mortgage tenure of 15 years with an indicated interest rate of 10.75 per cent a year, the applicant will get Rs 2,025 a month. But if you were to borrow Rs 9 lakh for 15 years at the same rate of interest you would have to pay Rs 10,088 a month to the bank. Apparently, reverse mortgage earns much less. But then don’t forget that you and your spouse have the right to live in the house for lifetime. On the other hand, if you had sold the house you would have earned more but then would have to pay rent too. RML also come with certain terms and conditions and if they are not fulfilled, the bank may foreclose the loan. For example, if the borrower has not stayed in the property for a continuous period of one year or if he fails to pay property taxes or maintain and repair the residential property or fails to keep the home insured, the bank reserves the right to foreclose the loan.

Mixed response

Despite being attractive, the reverse mortgage scheme has failed to do as was expected. Around 23 banks and two housing finance companies have introduced the scheme in the last two years but except State Bank of India (SBI) most others have a varying degree of actual performance in RML. For some the performance is very poor.

Even before the scheme was formally launched by the Government, Dewan Housing Finance (DHFL) took the initiative early and was the first off the block in India with a scheme called ‘Saksham’ in August 2006 targeted at retired senior citizens above 60 years of age. Then Punjab National Bank (PNB) launched the reverse mortgage loan called ‘PNB Baghban’ in April 2007 and in 15 months tenure till July 2008 it registered only 113 cases across India sanctioning loan up to Rs 49 crore. Union Bank of India’s RML called ‘Union Reverse Mortgage’ has also received a poor response. Union Bank Chairman and Managing Director M V Nair says “the response has not been good. We have seen only a few takers for that plan.”

Initially, the scheme failed to take off due to confusion over tax treatment especially whether mortgaging the home should be treated as an income and taxed or it should be treated as a loan. However, the government in the Union Budget 2008-09 made it very clear that the loan under reverse mortgage scheme will not be considered as transfer of capital, thus putting it out of purview of the income tax. Subsequent clarification should have ideally paved for the success of RML in a big way as it benefits both borrowers and lenders simultaneously.

Yet, going by the latest data of National Housing Bank (NHB) with RML outstanding is just over Rs 573 crore from 2100 customers as on March 31, 2009 tells a different story altogether.

Perhaps, the NHB data may have overlooked to include the stand-alone figures of the State Bank of India (SBI) which has sanctioned limits of Rs 683 crore spread over 3600 accounts in 2008-09. Even the combined figures of both NHB and SBI is still not inspiring enough given the large number of banks in the business.

Critics in the industry including CFA (chartered financial advisors) perceive that the basic drawback of RML is that the EMI is calculated on the Future Value (FV) of Present Loan amount even after safety margins. They also suggest that banks should view RML as an opportunity to deliver their social obligation and government should also add a part of subsidy by guaranteeing the loan.

From bankers view, marketing RML is a challenging task as it targets the vulnerable section of society and they will not be able to use the aggressive methods of marketing and advertising like they do in case of other loan products. Many customers want a big share of the loan amount at one go instead of monthly or quarterly pay-outs and banks generally do not encourage this trend as it would increase their lending risks.

Huge potential

A study paper titled ‘Assessment of Reverse Mortgage Products in Indian Market’ presented by two professors of Indian Institute of Technology-Delhi and Institute of Management Technology-Ghaziabad say RML is beneficial to the borrowers and lenders simultaneously.

According to the study it is expected that the number of senior citizens would be 140 million by 2016 and 220 million by 2030. If 20 per cent of the eligible elderly population were to take the advantage of RML, the total number of loans would be of the order of 18 million in 2010, 28 million by 2016 and 44 million by 2030. If the average eligible amount of one loan is taken to a conservative sum equal to Rs 10 lakh per borrower, the total RML market size will be in the range of Rs 20 to 25 trillion – which is about US$ 500 billion in dollar terms. Lack of social security measures has created a need and desire for such products.
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