What is a ‘Reverse Mortgage’ Scheme?

by Amandeep Singh

in Financial Planning

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.

What is Reverse Mortgage Scheme; Lifetime Mortgage

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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.

{ 49 comments… read them below or add one }

Bilal Ahmad February 23, 2010 at 11:01 pm

This is looking good scheme, but the disadvantage is that this only for Senior citizens.
.-= Bilal Ahmad´s last blog ..World Call (EVDO) Wireless Broadband USB For Internet =-.

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BHARAT JAMANADAS SHAH March 5, 2010 at 12:33 pm

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

Reply

Amandeep Singh March 31, 2010 at 1:31 am

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

Reply

Edelmira Vedia March 14, 2010 at 6:44 pm

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

Reply

Amandeep Singh March 24, 2010 at 5:08 am

Thanks a lot Edelmira for the encouraging words 🙂

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Lon Englett March 15, 2010 at 3:36 pm

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?

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Bharat J.Shah April 2, 2010 at 3:07 pm

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

Reply

Coretta Heidkamp May 26, 2010 at 12:34 am

Wow, what an thoughtful post! I found your blog today, this is a really great post you made, keep them coming!

Reply

Amandeep Singh May 26, 2010 at 2:33 am

Coretta Heidkamp, Thanks a lot for the encouraging words 🙂

And these posts will keep coming 🙂

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AKHILESH DUTT June 26, 2010 at 8:45 pm

HOW WILL THE SCHEME WORK IN CASE BOTH HUSBAND AND WIFE REMAIN ALIVE EVEN AFTER THE TENURE OF 15 YEARS GETS OVER

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virender kapoor August 6, 2010 at 7:42 pm

i am interested in the scheme if possible contact me

Reply

Amandeep Singh August 12, 2010 at 2:16 am

Virender,

Can you please let me know your concern 🙂

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Jaishankar M. Talreja November 23, 2010 at 5:02 pm

Intend to apply for a RML for a flat in Mumbai where my mother (above 60 years) & I are joint owners (Mother is the first / primary owner). We intend to buy another flat in Mumbai for which we intend to take a RML (lumpsum payment up front) & I will then pay the same off in a couple of years.

could you kindly advise on the following:
1) Would there be any issue in terms of eligibility or amount of loan since my mother is not the sole owner of the property (I can relinquish / define a nominal share for myself, if need be)?

2) Are you of aware of & if so can you recommend Banks which are willing to disburse lumpsum instead of annuities & are practical (i.e. not too ardous) in sanctioning such loans?

Reply

SEO Directories December 8, 2010 at 6:12 am

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A. PRABHAKAR RAO January 29, 2011 at 9:36 pm

I am 62 years old. I have no pension. My wife is 56 years old, who has the house property worth Rs.60 lacs in Hyderabad. We require Rs.10 lacs loan under Reverse Mortgage Loan. Is she eligible to get the reverse mortgage loan, if I am being Senior
Citizen as a co-applicant and as Joint borrowers?

Reply

Amandeep Singh September 24, 2011 at 6:02 pm

Hi,

Unfortunately, she is not eligible for the loan as she is not above 60 years of age which one of the eligibility criteria.

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gopalakrishnan March 21, 2011 at 1:33 pm

Propose to avail myself of reverse mortgage loan in one lumpsum.Kindly guide.

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gopalakrishnan March 21, 2011 at 1:36 pm

This is a useful scheme.Iam interested in availing RML. kINDLY HELP.

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Amandeep Singh April 11, 2011 at 4:11 am

Hi Gopal,

You will have to check with one of the banks I have mentioned above for the details. They will guide you through the process and the formalities… 🙂

Reply

Amarjit Singh May 7, 2011 at 10:42 am

I belong to Ludhian and have a house in one of upcoming new colonies . This area falls outside the Muncipal area, Do I qualify for RML ?

Reply

Amandeep Singh May 8, 2011 at 11:54 pm

Hi Amarjit Singh,

I am also from Ludhiana 🙂

It would be better if you check with the individual banks for all the terms and conditions. As far as I know, it should not matter 🙂 Please let me know if you need any more details…

Reply

Bharat Shah May 9, 2011 at 11:14 am

Dear sir,

I aged 65 Senior citizenhad applied for RML with SBI, but due to bad credit report by CIBIL, they refused my loan. I have outstanding of Personal Loan and Car Loan of Rs.1.5 lacs as on date.
The marlet value of my property is around 1.15 Crores. The property is situated at pose area of Kalawad Road in Rajkot city of Gujarat State. I only want Rs.10 Lacs for the Renovation and Medical expense of my wife who has cardiac problem.
Is it possible that out of my loan amount, the lender first pays my dues of Rs.1.50 lacs and gives me balance amount or any other solution ?

Regards,
Bharat Shah

Reply

Amarjit Singh June 27, 2011 at 11:13 am

Thanks for your attention.All these people writing to you for help,being elderly are not able to run around.Our banks are so hard to deal with,for a small work which they can very easilydo,they call u repeatedly just for the heck. Suggest u make a union of like minded persons to help them or make an NGO. aLTHOUGH i am 75 yrs old i offer my services for enrolement.Incidentaly iapplied for RMS to central bank 4 months back and they have been unable to decide the branch which will deal my case,that inspite the fact they have aAGMs office in the city whom i have met many times.

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umesh jain July 1, 2011 at 4:23 pm

sir i am 65 year old man and my house is in my wifes name who is 60 years old. i am at present staying at andheri west and have 1bhk flat in mhada colony. i want to apply for reverse mortguage.approximate market value of the flat is abt 80 lakhs. how much amount i can get permonth under this scheme. if both of us survive beyonde 15years from now on what will be the situation

Reply

Amandeep Singh September 24, 2011 at 5:59 pm

Hi Umesh,

Thanks for your question – below is the answer and analysis that we have for you:

– As you are in the 60-70 age group, you will get a loan of 60% of the property value.
– Taking 80 lac as market value of your property, you will get a loan of 48 lac over a period of 15 years.
– Based on this, you will get around Rs. 26,000 per month.
– If both of you survive beyond this period, you can continue to stay in your house and bank will stop the monthly payment and take over the house only once there are no survivors or if you move permanently out of the property.

Please get back to us in case of any further questions.

Reply

Anand Bhagwat August 3, 2011 at 7:30 pm

Dear Mr Amandeep Singh,

Thank you so much for all the information. I am a senior citizen and this info has given a new dimension to my future plans.

I shall be grateful if more such schemes available to senior citizens are explained.

Good job, keep it up.

Anand Bhagwat

Reply

Amandeep Singh September 24, 2011 at 6:06 pm

Hi Anand Sir,

Thank you so much for such encouraging words 🙂

We will post about more information on such schemes which help our senior citizens. Please stay tuned 🙂

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sumit September 25, 2011 at 11:26 am

i m a student pursuing CA.i was searching about the tax implication of RMS; nd found ur post.

i like it very much.
u can send any useful information on my email id, if u like .

thanks a lot

Reply

K M Prasad December 7, 2011 at 9:23 pm

Dear Sir,
I retired on 31/07/2003 from HAL Factory , date of birth is 20/07/1943 ,I have monthly family pension Rs.726/-only.I received contributory P.F. at the time of my
retirement and purchased and registered on 22/11/2010 a 30×40 Sft. residential plot in Bagalore from Indian Overseas
Bank,Malleshwar Branch after bidding .
I am staying in rented house with spouse in Bangalore,If Reverse mortgage home loan is provided to me then I can get rid of rented house.Kindly suggest and guide me
for applying method
K M Prasad
9972025604
kmohan119@gmail.com

Reply

Amandeep Singh February 27, 2012 at 7:46 pm

Hello K M Prasad JI,

First of all, sorry for the delay in reply.

Are you the sole owner of this property? As you are 68, you can get in touch with local banks like SBI and PNB and check for the evaluation of your plot.

Reply

rajesh December 3, 2012 at 10:11 pm

Dear prasad sir,
Reverse mortgage home loan is given against mortgage of house.
House should be self acquired and self occupied. Since u have a plot u will go
for regular home loan.
Regards
rajesh

Reply

Amandeep Singh January 2, 2013 at 5:05 pm

Thanks for answering that, Rajesh 🙂

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r.p.pandey December 19, 2011 at 5:45 pm

Scheme no doubt very good but banks probably have not taken up with that spirit.If properly advertised it will definately get momentum.it must be a boon to senior citizens, they do not have to be dependent on the mercy of others.
One thing is not clear to me,why it is time bound,what to do after 10 or 15 years ?

Reply

R P Pandey January 12, 2012 at 8:00 pm

I am retd person age 60 ,I have house in joint names of myself & my wife age 53 yrs. PNB and SBI has fixed age critarian -as 60 for the first applicant & 58 for spouse. Thus I shall have to wait for 5 yrs. Had the same property been in my single name, I would have become eligible right now. all other terms/conditions fulfilled.
Is there any other bank who does not have such pre conditions

Reply

Amandeep Singh February 27, 2012 at 7:37 pm

Hi RP Pandey ji,

You can try in these banks as well
National Housing Bank (NHB)
Dewan Housing Finance Limited (DHFL)
Indian Bank
Central Bank of India

Reply

Satish Kuar February 3, 2012 at 1:25 pm

Sir, i am a 62 year old man..my wife and i live separately.. i wish to reverse mortagage my flat of which we both are joint owners…i would like to know if i can do so without my wifes consent as she has taken everything from me on false allegations. Hence i have to fend for myself…please help.

Reply

Hemkant Gupte May 10, 2012 at 10:56 am

I am 75 yrs. old & my wife is 74yrs. We both are joint holders with my daughter of a flat of 611 sq/ft carpet area in a housing society, in Thane city. Present value of my flat is Rs.60 Lakhs.
With RMS how much loan I will get? How much monthly payment I will receive on morguaging the flat under RMS.Necessary NOC from my daughter will be obtained before morguaging the flat.Kindly give the info of above .
Thanks,
Hemkant Gupte.

Reply

N Patel May 26, 2012 at 11:12 am

Hello Sir,

Sir, I was doing a business about a year back, which shut down with heavy losses. Now I am unemployed and my father is retired. My father wants to help me by taking RML in his name for his flat which has an approx value of 1 crore. He is a Senior Citizen of 68 years. The only thing is that he wants about 50 lakhs as a single one time upfront payment under RML. Is this possible? Kindly reply at the earlies.

Thanks and Regards,

Neeraj Patel.

Reply

Charan Ka,al Singh June 28, 2012 at 7:49 pm

I am charan kamal singh from assam, I have land property thats value may be 2.5 lacs. Now how much i can take loan reverse mortgage loan from sbi?

Waiting you reply

Reply

Ready to Occupy Properties in Hyderabad June 28, 2012 at 8:35 pm

The investment in real estate in India is one of the most successful investment phenomenon is the last few years

Reply

RIZWAN September 13, 2012 at 9:40 pm

REVERSE MORGAGE LOAN IS REFUNDABLE IN MONTHLY INSTALMENS OR NOT
I AM IN CONFUSION WHETHER IT CAN BE REFUNDABLE OR NOT

Reply

b daakshaayani September 28, 2012 at 1:33 pm

kindly answer the following queries
maximum age for reverse mortgage loan in sbi
period of loan
monthly income if the property is valued at rs 24.00 lacs
what will be the fate of the house after the loan period

Reply

k m prasad January 4, 2013 at 2:39 pm

Hello!
I have got residential site 30×40 in Bangalore in my own name and wish to construct a house to stay there with
spouse but I do not have sufficient amount to build the house .Now I am staying in rented house
in Bangalore after my retirement from factory job .I am getting only Rs. 726/- as pension (Family ). I wish to get some financial support from the Govt. so that I can spend our rest of life
peacefuly in our home.I am not illigible to get reversemortgage loan as I do not have house.
Govt. of India should provide loan at least those having thrier residential site and interested
to build their house .Like me so many person will come forward for loan.

K M PRASAD

Reply

namita February 11, 2013 at 1:43 pm

In case i take rs. 5 lacs under the reverse mortgage scheme. Once i repay this loan will i get my house back. What is the rate of intrest to be paid?

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jagdish March 16, 2013 at 9:35 am

Sir Iam 61 yrs old and I want rml and iam having loan of rs 10 lakh with icici bank and due to my low income I don’t able to pay the installment regularly but iam not fraud but sbi refuse my application sir if I clear my account can I get rml or not

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deepak mohan March 20, 2013 at 6:15 pm

availed RML from nationalised bank. Bank paid lum sum Rs 7 lac and 2 monthly instalments.Now they stoped monthly payment on the ground of non submission of sanctioned house plan from Municipal Corp. Assesment of the house, house plan submitted at the time of registry to revenue department, cash reciept voucher of fresh plan applied with MC submitted, rejection letter of MC with remarks SUBDIVISION OF PLOT since there is notification from Haryana Govt not to sanction plan of subdived plot notification of govt also submitted with bank. Stopage of further instalment os correct. Confirm and advice further action.

Reply

jagdish mehta April 28, 2013 at 3:22 pm

I am 60 and my wife is 52 years and the difference in age due to we both are physically handicap above 40% by birth and have not procured any certificat for the same for any type of benifits for the same. CENTRAL BANK OF INDIA is offering RML amunity they are giving 11.25 lacs initialy for the 4500000 lacs loan for the mortage of 7500000 lacs property at mumbai were in they will keep 750000 lacs in FD as security on compound interest and will charge us interest @12.25% pa compounded. STAR DAICHAI WILL BE GIVEN 2650000 which in turn pay us monthly Rs. 12000/ till life of both us and after the death of both they will give back 2650000 to the hier and if in any circumtance there is no exit early for they will not return 26.5 lacs to pay away to the bank. Now my assesment that I have to keep the money 11.25 lacs in FD and enjoy from the interest and monthly 12000/ which I receive and increase the corpse to keep pace with rising prices I want advice that I am not getting into a trape please advice

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J.V.Ratna Rao April 30, 2013 at 11:26 am

My sister-in law is about 70 years old. She is having a well built house in Vijayavada in a prime locality . which may value about 60 lac. She is residing with her Husband in one portion and the remaining three portions(single bed portion) was given for rent for which she is getting Rs. 9,000/- rent. Recently her Husband attacked with Paralysis and is incurring huge amounts for treatment.They have no other source of income other than the rent they are getting Rs.9,000/- . Hence she want to avail RML to meet Medical expenses and daily needs.

Please advise whether she can avail loan along with her husband. They have no Children .Cousin Brothers(Second class legal heirs) would be Legal heirs. your immidiate reply will be highly appreciated.

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CHANDRAKANT PATIL July 16, 2013 at 11:22 am

I am 63 years old retired govt. pensioner drawing 32000 as pension. I own two houses (both in my name) presently one occupied by me with my son(My wife died last year) and another by my daughter. Beside I also own two residential plots. I am in need of about Rs.6 lacs immediately to settle my outstanding of credit card & other borrowings. How much RML I can get against house in my occupation,current market value of which is about 40lacs?

Reply

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