Reverse Mortgage: Concept gains momentum
By Minna Kumar
The concept of reverse mortgage is gaining momentum in India with the Finance Minister P Chidambaram giving his nod in the Union Budget for 2007-08.
Subsequently, the National Housing Bank (NHB), a subsidiary of the Reserve Bank of India (RBI), released draft norms of reverse mortgage (the final guidelines are awaited). This had led several banks to announce their intentions to launch reverse mortgage schemes.
Taking the lead has been ICICI Bank, followed by Punjab National Bank (PNB) and Bank of Baroda (BoB), all three having announced reverse mortgage schemes aimed at senior citizens. Other banks like Allahabad Bank, Oriental Bank of Commerce and Corporation Bank have expressed their intention to follow the lead.
Dewan Housing and PNB had introduced these scheme under the names Saksham and PNB Baghban even before final guidelines on reverse mortgage were announced by National Housing Bank, the nodal agency for mortgage finance.
Before embarking on the norms, we must understand what reverse mortgage means.
In a regular mortgage, a borrower mortgages his new/existing house with the lender in return for the loan amount (which in turn he uses to finance the property); the same is charged at a particular interest rate and runs over a predetermined tenure.
The borrower then has to repay the loan amount in the form of EMIs (equated monthly installments), which comprise of both principal and interest amounts. The property is utilised as a security to cover the risk of default on the borrower’s part.
In the reverse mortgage, senior citizens (borrowers), who own a house property, but do not have regular income, can mortgage the same with the lender (a scheduled bank or a housing finance company-HDFC).
In return, the lender makes periodic payment to the borrowers during their lifetime. Inspite of mortgaging the house property, the borrower can continue to stay in it during his entire life span and continue to receive regular flows of income from the lender as well. Also, since the borrower doesn’t have to service the loan, he need not bother about repaying the ‘borrowed amount’ to the lender.
NHB has relaxed restriction for availing loan facility by senior citizens under the Reserve Mortgage Loan (RML) scheme.
“The restriction on married couples being eligible as joint borrowers provided both are above the age of 60 years, has been relaxed so as to include those couples also wherein one of the borrowers is below the age of 60,” NHB said.
NHB has modified its operational guidelines for RML after receiving feedback from stakeholders on the draft guidelines.
According to the final norms, borrowers will not be required to pay any penalty toward prepayment of loans.
The most important feature of the reverse mortgage guidelines is that it allows senior citizens to have a steady stream of income by mortgaging self-occupied property to banks or other eligible financial institutions.
Source : http://sify.com/finance/fixedincome/fullstory.php?id=14467183