What is Reverse Mortgage?
A reverse mortgage (or lifetime mortgage) is a loan available to senior citizens. The finance minister of India introduced this scheme in 2007 which is already well known concept in the West. “Reverse mortgage”, as its name suggests, in simple words is just the opposite of a normal housing loan.
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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.
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This is looking good scheme, but the disadvantage is that this only for Senior citizens.
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I submitted RML application as an eligible senior citizen, they returned my application under following ground.
I submit application returned letter received by Jagnath Plot Branch, Rajkot from Sanction Authority RACTC Cell as under:
——————————————————————————————————————————-
The Branch Manager, Dare:18.01.2010
SBI, Jagnath Plot Branch,
Rajkot.
Dear Sir,
Re: Housing Loan.
Shri Bharatkumar Jamnadas Shah.
We refer to your Housing Loan proposal of Shri Bharatkumar Jamnadas Shah and the same is returned herewith following observation.
1. As per CIBIL Report the applicant is having loan from various Financial Agencies of which 3 loans are in overdue position and one loan is written off status. These loans are not shown by the applicant in application as well as in Opinion Report. Looking to the CIBIL Report his track record is not satisfactory which is not at all acceptable..
Assistant General Manager
——————————————————————————————————————————
Sir, as per above letter they returned my file back to my Jagnath Plot Branch and in turn they returned my paper back to me.
Under such circumstances, I hereby have my suggestion as under:
I request RACTC Cell to sanction my required loan and out of which, they reimburse my 3 overdue loan and pay me the balance sanction amount to me.
2. Under such circumstances, can i get the balance loan or not?
This loan is very much essential as I have to carry out Renovation of said flat, which is in bad shape, due to damages occured during 2001 Earthquake and secondly my wife is suffering from Heart problem.
I am low salary paid Rs.8000 Senior Citizen and government has established this RM L to help citizen like us. I was not able to pay overdue loan, because I had a business loss and due to my age I have no alternative but to get the loan or sell my house, which will not get fare value due to deterioration of the house.
Your intervention in this matter will be highly appreciated.
Applicant: Bharatkumar Jamnadas Shah
Following mail for ready reference sent to you on 02.02.2010
I SUBMITTED MY RML application to SBI , they refused RML Loan due to CIBIL bad Credit record. I have overdue loan of Rs.100000 with ICICI Bank/HDFC Bank.
My property market value is Rs.70Lacs.
Can you guide me, still under such circumstances, can I get RML Loan of Rs.10 lac?
Your guidance is very much necessary. Do the needful to help me.
Bharat Shah
M9374100811
Hello Mr. Bharat Shah,
First of all, I am very sorry for the delay in the reply. Actually, I was making a move in the last 2-3 weeks so did not have enough time to take up your issue.
But I hope that this helps you now.
After reading the information that you provided, I infer that the total outstanding for your 3 outstanding loans is 1 lac with ICICI and HDFC Banks. And now, you require Rs. 10 lacs as a loan under the RML scheme as a senior citizen. (Please correct me if I have assumed anything incorectly)
What I would comment in this case is that, nowadays, all the banks, Private or PSUs, they follow the credit history record for an individual as maintained by CIBIL. Till you clear the amount that is overdue in your name the banks will not entertain you for not only RML but any loan application.
What I want to advice you is that you should borrow money from any of your friends for a period of some 15 days (or max one month). If he is not a close friend you can even offer him some good interest for one month. What will happen with this is that when you pay this money (1 lac) with the banks, they will give you a Closing Receipt which will mention that you have made the outstanding payment. You will get an NOC for the same at your address by post within 2 weeks time.
Also, if you donot want to wait that long, you can use the receipts that you get from the bank and re-submit the RML app with the bank. I am sure that the bank will approve your application this time. And when your loan for 10 lacs gets approved against your property value of 70 lacs, return the 1 lac that you took from your friend plus the interest. You will be left with 9 lac rupees which you can smartly use for the renovation of your flat and good treatment of your wife.
Also, I would suggest to make some investments out of that money which can give you some good returns. Please feel free to get back to me in case you have any queries regarding what I eexplained above.
Thanks,
Amandeep
Hey there i liked your blog and just wanted to take 5 mins of my time to say thanks it was just what i was searching for anyway keep up the great work and youll see me soon:D
Thanks a lot Edelmira for the encouraging words
Need to pay off my mortgage towards the end in the month but don’t even think that I will make it, is it possible to assist?
Mr. Amandeep Singh,
Thanks for the suggestion. As I am new to this place, I have no source from whom I can borrow any amount.
Under such circumstances, how can I clear Bank’s ‘debt.
In other countries, they safegurad the interest of Senior Citizen. Not only that, but they get RML against bad credit. In my case, I requested the concern bank to pass my RML and from that they can clear my Loan with said ICICI and HDFC Bank.
If bank doesnot agree, then what is the sense of RML. RML is to help Senior Citizen, who have no source of income.
I hope somebody should take up this matter with concern authority and should make changes for the cases facing difficulties like me.
I request you to guide me under such circumstances.
Best Regards,
Bharat Shah
Wow, what an thoughtful post! I found your blog today, this is a really great post you made, keep them coming!
Coretta Heidkamp, Thanks a lot for the encouraging words
And these posts will keep coming
i am interested in the scheme if possible contact me
Virender,
Can you please let me know your concern