A conventional adage goes this way: "You can't have your cake and eat it too". People usually believe in and go by what conventional wisdom preaches. Nevertheless, reverse mortgage concept contradicts the saying by proving that one can have the cake and eat it too. With the entry of reverse mortgage in India now, the house-rich senior citizens have a big reason to rejoice. Reverse mortgage allows them to live in and also simultaneously earn from their residential property.
A reverse mortgage, essentially, helps retired people to convert the equity in their home into cash, which supplements their regular income. Thus, it perfectly suits the retirees who are house-rich and cash-poor. After observing the popularity and performance of reverse mortgage products in developed countries, the National Housing Board of India has also decided to introduce them in India as a part of its plan to develop the housing sector. Dewan Housing Finance Limited (DHFL), the second-largest private house finance company in India, was the first off the block to launch the product.
DHFL has recently launched the first reverse mortgage scheme in India called "Saksham". This scheme is targeted towards senior citizens aged 60 and above who have been residing in the house for at least a year. Sanjay Matai says, "This scheme would provide financial security for the elderly, especially those who either prefer or are forced to live independently in their twilight years." He further adds, "This may prove to be a useful scheme in India, where more than 90% of the population does not enjoy any old-age benefits like pension or social security. It is seen that many people own a home, but have no income to meet their daily needs."
The process starts with the valuation of the homeowner's property on the basis of prevailing market prices. Once this is done, the finance company will pay fixed monthly installments depending on its value till the time the borrower and his spouse are alive. The scheme allows them to reside in the house even if they outlive the tenure of the loan. The only difference being that they will not receive monthly payments like earlier. Later, after their demise, the finance company will recover the amount paid to them by selling off the house. It also allows the heirs to repossess the house by paying the loan amount. DHFL's scheme, which was launched in Mumbai initially, will also be rolled out various areas across the country. Other finance companies are also expected to follow suit.
Though there are many advantages that reverse mortgages offer, they do suffer from some concerns. A major concern is regarding the high upfront fees charged by the finance companies. This makes reverse mortgage a costlier affair compared to other mortgages. Another issue is that the homeowner has to bear taxes, insurance and maintenance and other housing expenses as he retains the title of the house. The high interest rate charge on the loans is yet another cause for concern. |
