Reverse Mortgage Loans In India: A Great Support For Old Age

Changes and evolving regulatory policies are the usual norms of an economy. And every industry operating within an economy undergoes the same. So it is not surprising that India, revered as a fast developing economy, has witnessed several changes and new regulations have been brought about.

Following the footsteps of several western countries, the government of India introduced the concept of reverse mortgage loans back in 2006. This brought in certain changes within the Indian property market as it opened up a new window for the elderly in the country. Reverse mortgage is the type of home loan that is available exclusively to senior citizens. Also, a reverse mortgage loan is the exact opposite of a typical mortgage loan.

What is reverse mortgage loan?
It is a form of loan particularly designed for senior citizens (who are over 60 years of age) and the loan is granted against the equity of property. The borrower does not need to make any statutory payment during his/her entire life for loan against this property. Under the scheme, the equity of the house property is renewed into an income channel without having to liquefy the equity. One of the biggest benefits offered by the reverse mortgage loan is that, in spite of mortgaging the house, the owner has the authority to retain its ownership and can choose to live in the same house for his/her entire life. For example, if a senior citizen wishes to invest in a residential property in Bangalore and considers a suitable home loan, a reverse mortgage loan can turn out to be quite helpful.

How reverse mortgage loan is different from traditional home loans
In a normal housing loan, every EMI paid towards servicing the loan increases the home equity. Once the loan has been fully paid, the equity becomes 100%. But reverse mortgage is exactly the opposite. When one chooses to pledge one’s house for reverse mortgage, the home equity decreases with every disbursal. While in a traditional home loan you have to pay an EMI, the same is not applicable in case of a reverse mortgage loan.

In India, Dewan Housing Finance was the first financial institution to launch reverse mortgage loans in 2006. The name chosen was Saksham. Currently, more than 25 prime lending institutions offer reverse mortgage loans. Some of these include the State Bank of India, Andhra Bank, Indian Bank, Canara Bank and Corporation Bank, among others. Interest rates for these organisations vary from 10-13% with minimal processing fees. Now the minimum tenure of loan is 10 years and extendable up to 20 years.

Eligibility criteria and how a senior citizen can benefit
Basic eligibility criteria for availing reverse mortgage loans are:
· Owner of the house should be more than 60 years of age.
· The residential property should be self-acquired.
· If spouse of the owner is a co-applicant, he/she should also be over 58.

So how foes a senior citizen benefit from this? Well, here are some of the ways:
· In old age when medical expenses begin to rise, RML can obviously come to the rescue.
· It helps in unlocking illiquid wealth and ensures income generation; it also helps in converting investment into a property into a lump sum or a certain periodic cash flow.
· The loan provides security to the elderly.

Role of National Housing Bank in promoting RML
The National Housing Bank (NHB), a 100% subsidiary of the Reserve Bank of India, has been instrumental in fostering the growth of RML in India. The NHB is solely responsible for regulating and refinancing all primary lending institutions to the extent that RML is disbursed by them. The NHB also takes the guarantee to every senior citizen who wishes to avail the benefits of the loan.

There have been multiple speculations about the acceptance and the success of reverse mortgage loans in India. Reviews and perspectives have been mixed. In a survey conducted in Delhi, Kolkata, Chandigarh and Hyderabad, it was revealed that a majority of the borrowers had a favourable take on reverse mortgage loans while most of them had some issues or other about their long-term implications.

Implications of reverse mortgage loans
However, reverse mortgage loans have recorded certain social implications. As per traditions, Indians have always expressed their desire to pass on their properties to their heirs. With this kind of mental set-up, it obviously takes a considerable time to accept the change. Nonetheless, with changing social mores, the fear of debt has begun to subside. Moreover, the knowledge that in time of medical emergency or any other financial need, senior citizens can always fall back on the cash flow are enlightening the younger generation.

Experts feel that India is a potential market for reverse mortgage loans in keeping with its growing economy, current growth rate, disposable income and life expectancy. While some speculations continue to spark debates, reverse mortgage in India is predicted to perform well in the time to come.

Sampurna Majumder is a professional writer who writes for www.99acres.com