REVERSE MORTGAGE -BOON OR BANE FOR SENIOR CITIZEN

HEMA KIRANMAI P RAHUL M V RAJESH D M

MORTGAGE
Transfer of interest in an immovable asset such as land, building etc.

TRANSFER OF PROPERTY ACT, 1882

Sections 58 a, b and c A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by the way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

REVERSE MORTGAGE
What is Reverse Mortgage? Who is the Mortgagor?

Who is the Mortgagee?

What is being Mortgaged? What is Reverse Mortgage Loan Scheme? Who formulated the Scheme? When? Why? How is it implemented? Who repays the RML? When? How? Which banks / others launched it in India?

REVERSE MORTGAGE
An arrangement in which a home owner borrows against the equity in

his /her home and receives regular monthly tax free payments from the
lender. It is also known as Reverse-Annuity Mortgage or Home Equity

Conversion Mortgage [HECM].

A Reverse Mortgage is the exact opposite of a normal Mortgage transaction, [hence the name Reverse Mortgage] but restricted to a

housing property.

HOW DOES IT WORK?

In a typical mortgage, you borrow money in lump sum right at the beginning and then pay it back over a period of time using Equated Monthly Installments (EMIs). In reverse mortgage, you pledge a property you already own (with no existing loan outstanding against it). The bank, in turn, gives you a series of cash-flows for a fixed tenure. These can be thought of as reverse EMIs. The specific format National Housing Board (the facilitator for housing finance in India) is promoting is one in which, the tenure is 15 years and the owner of the house and his/her spouse continue to live in the house till their death -- which can occur later than the tenure of the reverse mortgage.

Simply put, any senior citizen, opting for reverse mortgage will get annuity (the
reverse EMI) from the bank for 15 years. After that, the annuity payments stop. However, they can continue to live in the house.

POPULATION AGEING IN SELECTED COUNTRIES

POPULATION [In Millions] % OF POPULATION POPULATION OVER 65 OVER 65 [In Millions]

YEAR
USA Brazil Russia

2010
308 190 139

2030
351 203 133

2010
11.3% 6.9% 13.0%

2030
20 % 13.2% 20.5%

2010
35 13.2 18

2030
70 27 27

India
China

1107
1340

1437
1483

5.25%
9.7%

9.0%
16.0%

58.2
130

129
237

250

200

150

2010

100

2030

50

USA

Brazil

Russia

India

China

REVERSE MORTGAGE IN INDIA

NHB introduced the Reverse Mortgage Loan scheme in May 2007 (first time in India). In the Union Budget 2008-09, all payments made under RML were exempt from tax under Section 10(43); Capital Gains tax applicable to the borrower only at time of alienation of property. Reverse Mortgage Scheme was notified by the Government of India vide Notification No. 93/2008/F.No. 142/06/2008-TPL in September, 2008 .

The scheme is presently implemented by 23 Banks and 2 HFCs.

No. of Loans: 6400; Amount sanctioned: Rs.1200 crore

 How is the loan paid ? What happens after the death of one or both of the spouses? How much of an annuity income can my house generate using reverse mortgage? What is a loan to value ratio? Does a person's age affect the amount of annuity paid? Why is this scheme not popular?

Eligible Borrowers Lending Institutions Annuity Provider

Senior Citizens above 60 years and spouse over 55 yrs Scheduled Commercial Banks and Housing Finance Companies Life Insurance Companies

Borrower Interface
Security Interest Rate Quantum of Loan
Borrower Age Loan to Value

Only with Banks / HFCs

Mortgage of House Property in favour of Bank/HFC According to Market Conditions

60 to 70 years
60%

70 to 80 years
70%

80 and above 75%

Nature of Payment
Lump Sum Reverse Mortgage Redemption Reserve (RMRR)

Periodic - Monthly, Quarterly, Half-yearly or Annual Lump sum or Line of Credit, subject to terms. Combination of above.

Upto 25% of Loan Amount, subject to terms of Lender. Option for Bank/HFC to set aside upto 10% of loan amount as RMRR to address property price adverse fluctuation risk. To be adjusted with principal outstanding at time of loan redemption.

WHY WOULD A SENIOR CITIZEN GET A REVERSE MORTGAGE

To eliminate current mortgage and payment To supplement their retirement income To remodel and/or repair their home To pay property taxes To cover extreme health care costs Get house out of foreclosure

MERITS OF REVERSE MORTGAGE

Improves Quality of Life You Get Tax-Free Money Extensive Payment Options Independence Source of income Your Humble Abode Is Guaranteed Yours

DEMERITS OF REVERSE MORTGAGE

Interest Rates Stuck at Home Restrictions on Eligibility Reduction of the Heirs Inheritance Compounding interest will be added to your debt If property is sold by the owner after the completion of tenure then the difference amount becomes a liability to him.

CONCLUSION
A reverse mortgage can provide money when you need it, but the mortgagee should do his/her homework before applying for a reverse mortgage. It's important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the mortgage company essentially owns your home. Get sound advice. Discuss your reverse mortgage plans with legal and financial advisors, and family members, before making a decision. Be sure that the older homeowner is thinking clearly when making this decision (no dementia or symptoms of Alzheimer's) because having a sudden influx of cash can be a heady experience and it would be a shame to waste it or become the victim of a scam. Reverse mortgage is a boon to the senior citizens if utilised with careful considerations and proper investigations as it enables them to lead a happy, peaceful, secure and independent life in their last days.

BIBLOGRAPHY
www.hindu.com www.nhb.org.in www.blonnet.com www.reversemortgagepage.com www.censusindia.net www.youtube.com www.reversemortgagesense.com

THANK YOU!