Why Reverse Mortgage in India?

Old age comes along with heap of problems. Dependency of old people on other people increases as they grow older and their income dries up. The family members or guardians of old people has to pay the health care expenses. Living the golden years with dignity and honour, with health care expenses on rise, can be considered as a challenge for old peoples as they grow older, and their regular source of income dries up, their dependency on others can increase significantly.

In this kind of situations, a regular income stream is provided to senior citizens, which can help them in meeting their financial needs, which can help them in meeting their financial expenses and maintain their living standards are provided with much higher priority.

Senior citizens believe that their value of the residential property has the major share in the total asset. A proposal to introduce Reverse Mortgage in India was put forth in union budget 2007-08 by finance minister P.Chidambaram.The borrower pledges his property to the lender, as a collateral, for the loan amount received. The loan amount for Indian reverse mortgage is charged at a higher interest rate for specific tenure. The borrower need to repay the loan in the form of EMIs, involving both principal and interest amounts for reverse mortgage. The residential property of borrower is utilized as security, which can cover the risk if the borrower makes default payments on reverse mortgage.

There are many senior citizens in India, who owns the property but they do not make the earnings on consistent basis. They pledge their property as collateral to lender for mortgage .the lender, in turn, provides consistent payments to the older people in their lifetime. These old people are allowed to stay in their residential property till they are alive. They will be receiving the consistent income from the mortgage lender.

The reverse-mortgage however considered as new in India, it popular in countries like United States. Draft norms related to reverse mortgage has been released by National Housing Bank, which is considered to be subsidiary of the Reserve Bank of India (RBI).

There are some features for reverse mortgage which are released from draft norms which are given below:

• As per the norms, a home owner, who can be considered as senior citizen after crossing 60 experienced years of his life can be eligible to seek a loan of upto 60% of the value of residential property by pledging it as a collateral, along with staying in the same property with, no need to pay off the loan.

• In terms of receiving the reverse mortgage loan amount, the borrower can go for payments with monthly, quarterly, annual payments according to their financial capability at the time of deciding the terms on reverse mortgage.

• Reverse mortgage loan amount can be used by borrowers for various needs such as home improvement, construction and maintenance of building loan amount for various purposes like renovation and extension of the residential property, medical expenses.etc. But the reverse mortgage is restricted, as it cannot be used for business purposes.

• The interest rate calculated for reverse mortgage is decided by bank/HFC taking in to consideration all the loan policies. The interest rate charged in India on reverse mortgage can be fixed or floating, which are provided according to terms and conditions provided to the borrower