Reverse Mortgage was launched in India with a lot of fanfare but unfortunately the scheme was a non-starter and could not meet it’s intended objectives.
The concept of Reverse Mortgage was conceptualized internationally to help senior citizens who are asset rich but cash poor.
The objective of this scheme is to help elders remain in their own homes at the same time, earn from the property till they are alive.
Some key points of the scheme are;
1) Periodical payments or a lump-sum for a maximum period 20 years.
2) Borrower(s) continue to stay in the house till they are alive or permanently move out of the house.
3) Borrower is not required to service the loan during his/her lifetime.
4) Loan amount is dependent on the value of house, age of borrower(s) & prevalent interest rate.
5) Loan amount may be used by the borrower for varied purposes including up-gradation/ renovation of residential property, medical exigencies, etc.
6) No capital gains tax
The larger point of debate is, why was Reverse Mortgage not accepted by the industry and by senior citizens themselves.
I guess the following reasons can be attributed depending upon the lender:
1) Only max 50% lump sum or max 15 lakhs
2) Max monthly receipt capped at ₹50,000/-
2) Typical loan amount given by the bank is 60-80% of house value
3) Maximum loan between 75 Lakhs – 2 crores
4) Very low loan amount from low value properties
4) Total interest payment to be paid to bank comes to 50-55% of the loan amount received
5) House should not be older than 20 years
6) 2-3% more expensive than normal home loan.
To conclude, Reverse Mortgage is a great concept which needs to be taken back to the drawing board, revised and updated for the benefit of Older People in India.
Pankaj Mehrotra