April 10, 2010

INDIA: National Housing Board offers seniors a new reverse mortage product

. MUMBAI, Maharashtra / MoneyLife / Personal Finance / Investing / April 10, 2010 With the new reverse mortage product, senior citizens in India have a real possibility of encashing the value of their homes, by getting a regular income from it, while still living in it until the end of their lives. National Housing Bank (NHB), along with Central Bank of India and Star Union Dai-ichi have launched a new Reverse Mortgage product, which, for the first time offers senior citizens a real possibility of encashing the value of their homes, by getting a regular income from it, while still living in it until the end of their lives. Reverse Mortgage (RM), as the name suggests, is a product for senior citizens. It is defined as an agreement by which a homeowner borrows against the equity in his home and receives regular tax free payments from the lender. The property is assessed and the company offering the RM decides on a fixed monthly instalment to be paid against it, which includes interest on the loan against the property. A person opting for this product and spouse will continue to live in that home for lifetime. On the death of the homeowners, heirs have the option of reclaiming the property by paying off the outstanding loan with interest. In the post-liberalisation era, senior citizens have suffered deteriorating life styles as most savings are locked in homes. High inflation and volatile interest rates have depleted income from other savings. Reverse Mortgae is opposite of a conventional mortgage. Mr. Jaishanker, Asst GM of National Housing Bank introduced the product at a brain-storming session at Moneylife Foundation. Participating were 20 leading NGOs in the Aging sector including Dignity, Helpage, Silver Innings, the Family Welfare Agency etc. Mr. Jaishanker explained how the new product was superior to the earlier offerings. The Sun Life Reverse Mortgage Loan/Annuity Plan is offered with Central Bank and Star Union Dai-ichi Life Insurance. He credited NHB Chairman Mr. Sridhar for his untiring effort in structuring a product in which the risk is distributed to the bank and the insurer. The value of the property is assessed at 60% for a 60-year old and rises to 75% for a 75 year old. He said, a property worth Rs 50 lakh can fetch a senior citizen anywhere between Rs 34,000 to Rs 50,000 a month, depending on the option availed. In India, reverse mortgage has been a non starter. Unlike in the US, the government does not bear the insurance risk nor the property fluctuation risk. Consequently, there was a steep cut in value of the product. Hence lower monthly payments to the senior citizens. Also it is not clear if the monthly income will be subject to tax, even though the home asset is usually built out of post-tax savings. This issue is with the Central Board of Direct Taxes (CBDT) and should hopefully see a decision in favour of the country's elderly population. According to PR Jaishankar of NHB, who is authored this project, the benefits are: > Life time payments till demise of surviving borrower. > No repayments till borrower lives and occupies house. > Single collateral; Borrower liability not to exceed house value. > Loan settlement through sale of house. > Heirs may repay without sale of house. Reverse mortgage thus, is very beneficial for senior citizens who want a regular income to meet their everyday needs, without leaving their houses. [rc] © 2009-10. Moneywise Media