Reverse Mortgage Loans

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Senior citizens are an increasing component of the Indian society.

Reverse mortgage loan thus aims at partially meeting the financial needs of senior citizens who are otherwise not eligible to avail any kind of financial assistance under conventional bank loan schemes. It enables fund inflows to the senior citizens during their lifetime, when their income sources are generally restricted and show a marked fall as compared to the period when they were in active occupation.

The reverse mortgage loan is a social service initiative, by which senior citizens can be assured that their house property will ensure them a steady flow of money as a mortgage. The senior citizens continue to live in the mortgaged property and are not told to vacate under any circumstances. Property being used for commercial purposes already cannot be mortgaged under this scheme. Further, there are no restrictions on the use of funds, except for speculative trading and business purposes. Expenses like health care and other needs, which are generally expected to arise with ageing, can be met from the payments received from reverse mortgage loan.

Take Latika Sarkar’s case, whose Rs. 10 crore property at Hauz Khas in Delhi has become a bone of contention between Bharati and Nirmal Dhaundiyal, an IPS officer from Bihar whose family now lives with Sarkar. The reverse mortgage loan is a boon in her case. She can easily borrow money against property from a bank for her maintainence. She can, alternatively, as per Section 15(2)(b) of the Hindu Succession Act, have the option of naming and including any person of her choice in her Will. Though this is the more conventional option, it is cumbersome and reverse mortgage is a much more beneficial alternative.

The greatest advantage of reverse mortgage loan is that there is no negative equity. This basically means that if the sale of the residential property does not cover the outstanding loan, the borrowers or the estate will not be asked to make up for the shortfall. Even if the senior citizen passes away, the spouse can continue to occupy the property until his/her demise.

By this thoughtful initiative, the Government has obviated the need for senior citizens to meet emergent financial needs, by selling their house and perhaps moving to a smaller house, possibly located far away to raise money. This is a very prudent idea as recently, an increase in residential house prices has created considerable “home equity” wealth. For most Senior citizens, the house is the largest component of their wealth. However, seeing the latest statistics, it seems that for a greater impact and involving larger number of people towards this scheme, it needs to be well packaged, presented and marketed.

Smita Rajmohan

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