Financing marriage expenses is not as Herculean a task as before, thanks to the reverse mortgage facility for senior citizens. “This facility has helped me conduct my daughter’s marriage without bothering too much about the expenses,” says Mr Seshadri, a senior citizen. Though he had saved for his daughter’s wedding, Mr Seshadri found that the budgeted amount and the actual sums he was incurring closer to the date of the wedding were poles apart.
Hassle-free
With banks wary of giving personal loans to senior citizens, Mr Seshadri had the option of going to a financier, but found the rates exorbitant. So he decided to make use of the reverse mortgage facility.
“It turned out to be hassle-free. I did not have to produce any income-proof or eligibility certificate. I had acquired this house when in service. My title deeds were clear and the rate was 10.75 per cent. A personal loan would have been more costly,” said Seshadri, recalling the ease with which he was able to get the finance.
He was among half-a-dozen senior citizens who took the reverse mortgage route, primarily to conduct their children’s wedding.
The facility allows senior citizens to unlock the value of their valuable asset, that is, their house, by mortgaging it and using the money while continuing to live in it until their death.
Lumpsum, instalments
A total of 22 banks and two housing finance companies offer this financial product in the country.
The applicant has the option of receiving a lumpsum amount or at fixed monthly or quarterly intervals. The amount payable is calculated on the market value of the house the senior citizen owns and occupies for residential purpose.
For instance, if the property is valued at Rs 10 lakh, State Bank of India is prepared to give 90 per cent of this value as the qualifying amount for the loan. The applicant is paid Rs 21,619 per lakh (for every qualifying Rs 1 lakh of loan if he opts for lumpsum payment) or Rs 225 a month (for every qualifying Rs 1 lakh of loan). The sum, however, would vary depending on the tenure of the loan, which is fixed at 10 or 15 years, again, depending on the age of the senior citizen.
Among other public sector banks, SBI has been trying to market this product quite aggressively. But sources admit that attempts to popularise the reverse mortgage scheme have not been as successful as in the West.
Yet to catch on
The Government though is signalling its interest in encouraging the scheme. Consider the tax treatment of the loan — Section 10(43) exempts any loan received by an individual, whether lumpsum or in instalments, in a transaction of reverse mortgage, if it conforms to the scheme notified by the Central Government.
So, where is the catch? Why has the reverse mortgage scheme failed to take off?
Observers say the scheme is loaded against the borrower. He gets a little over 20 per cent on every Rs 1 lakh, which is a pittance. Instead of mortgaging the property, the senior citizen should consider to sell the property and invest the proceeds in a bank and live in a rented house or settle peacefully in a home for senior citizens.
The interest earned from the sums deposited should be sufficient to take care of his monthly requirements. There are old folks without children and some out of luck with their wards. In both cases, they may not have enough sums to pay even for their essentials. Above all, the borrower does not have to worry about the dues the legal heirs to the property would have to settle (on his death) to retrieve the property.
The structure of the product is flawed. While one would expect the period of the loan to extend till the lifetime of the borrower(s), it has been specified as ‘not exceeding 20 years’ both in the Operational Guidelines and in the Reverse Mortgage Scheme 2008. This puts into question the fate of the senior citizen if he survived beyond 20 years. And the amount that he receives for mortgaging his property cannot be considered as a single source of income for survival. It can only supplement his other income, note observers. Then why did Mr Seshadri and few others opt for it?
According to the lending institutions, the few who avail of this facility are planning to repay/foreclose the loan during their lifetime out of their income from other sources.
Further, the interest rate is not much compared to a personal loan, for which they would anyway not be eligible, bank sources say. And that’s not all. Sentiments overrule, when it comes to mortgaging one’s own dwelling.
Source
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