Reverse Mortgage Loan Blog

Sometimes, the Kumars (name changed) wish they were younger and fitter. Wistfully, these 60-somethings, living in a middle-class Delhi suburb, recount their tale. He retired from government service seven years ago and got a pension. But it proved to be insufficient when medical problems beset both, and surgeries and medicines started eating into their savings. When their two children refused help, it looked grim. But then, one day, he read about a new product called ‘reverse mortgage’, and it looked like a doorway to a better financial life.

The Kumars had a house. They couldn’t rent it out, but they learnt they could turn it into an income stream in their lifetime, while continuing to live in it. They got in touch with Punjab National Bank (PNB), one of the two players with a reverse mortgage product. PNB assessed the value of their property at Rs 1.1 crore. It sanctioned a loan on 80 per cent of this (Rs 91 lakh), and structured this loan into monthly payments (like an EMI that you receive).

PNB is paying the Kumars Rs 42,000 per month for 10 years. Says Kumar: “We are able to manage our finances better. The payout takes care of our monthly medical bills and other critical expenses for now.” After 10 years, the payments will stop, but the Kumars can continue living in their house. Only when both of them die will the bank acquire their house. It will offer the Kumars’ legal heirs the option to repay the ‘loan amount’ and take the house. If they don’t, the bank will sell the property and recover its loan amount. Any excess amount over the loan amount generated through the sell-off will be given to the legal heirs of the Kumars.

At present, PNB and Dewan Housing Finance offer reverse mortgage schemes; more banks are expected to join the fray soon, including Allahabad Bank, Bank of Baroda, and Corporation Bank. A reverse mortgage product can be availed by anyone who owns a house, is retired and is above the age of 60 years. While only the monthly payout option is currently available, even a lumpsum is under consideration. The amount of monthly payment is based on the property value, the interest rate charged and the payment tenure. Like the Kumars, many elderly couples who have a house but not enough income can use that house to ensure a better financial life for themselves in their lifetime.

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