Source: The Economic Times
Despite nearly half-a decade of existence, reverse mortgage schemes are yet to excite senior citizens with the idea of mortgaging their properties to meet their financial needs in the twilight years.
There are certain conditions unique to the country -children taking care of their elders, and the desire to hand over property to the next generation -that seem to be coming in the way of such schemes.
Reverse mortgage, launched in 2007, is a financial product devised to help people above 60 to mortgage their property with a lender and convert part of the home equity into tax-free income without having to sell the house. The payment may come from a bank as loan or from an insurer as annuity income. The annuity income has also been exempted from tax.
“Having come this far, the case for reverse mortgage has already become stronger. It needs publicity, awareness and capacity building. The National Housing Bank should engage the insurance regulator to give this product a fresh nudge,” said RV Verma, former NHB chairman and managing director.
The market size is estimated at more than Rs 20,000 crore but banks have so far sanctioned about Rs 1,800-2,000 crore and disbursed merely Rs 800 crore. Verma said that about 7,000 people have mortgaged their homes to get reverse mortgage payments.
State Bank of India, Punjab National Bank BSE 0.00 %, Central Bank of India BSE -0.47 % and Indian Bank are some of the semi-dormant lenders in reverse mortgage while the largest housing finance company, Housing Development Finance Company, stayed away from this scheme.
The borrower gets annuity income till death. After that, the surviving spouse can continue to occupy the property till death. When the last surviving borrower dies or would like to sell the home, or permanently moves out of the home, the bank offers first right to settle the loan along with accumulated interest to the heirs, without sale of property.
“This scheme is designed to benefit senior citizens who are touch poor but asset-rich,” said Verma, who is now a member of the Pension Fund Regulatory and Development Authority.
But many like R Bhaskaran, chief executive officer of Indian Institute of Banking & Finance, felt that the rich may not need this product at all. “For the middle class and poor, the mortgaged property is possibly their only dwelling. If the borrower under the scheme dies, he will leave more loans on his successor who will not get the property unless the loan is cleared,” Bhaskaran said. Indians typically aspire to retain property for the next generation and don’t want to burden their children with loans.
He said that the scheme is safe for banks and insurance companies as the loan or annuity charges are fully secured due to mortgage. But it has not been popular because the rules are weighed against the beneficiary. At present, the maximum loan banks can give is only 60% of the valuation of the property.
Insurance companies are allowed to make the annuity payments but they are yet to make a real contribution to benefit senior citizens.