Reverse Mortgage Loan Blog

MUMBAI: Traditionally in India retirement from active service is usually considered to be the end of active life, and sooner or later a retiree becomes entirely dependent on his or her children. A promise in the current year’s budget by Finance Minister P Chidambaram of introducing reverse mortgage products is now fast liberating the senior citizens from that conservative parental mindset, putting him at a par with his European or American counterparts.

Reverse Mortgage Loan (RML) is essentially for the benefit of senior citizens, above the age of 60 years, against the security of their self-acquired, self-occupied houses. The loan is usually paid off by the legal heir of the borrower or is recovered by the sale of the house. According to trends being seen by a few leading banks which have already introduced RML product, they are receiving an overwhelming response from senior citizens.

“The old, who are otherwise deprived or enjoying a tour or making a purchase due to non-supportive children or any other commitment, can now avail of a loan, and that too, without bothering about repayments in their lifetime,” said Sangeet Shukla, chief general manager of the State Bank of India (SBI), while talking to this website’s newspaper.

On the encouragement of the National Housing Bank (NHB), several commercial banks like Punjab National Bank and SBI have already introduced RML product. Looking at the expected demand, not only private banks like Axis Bank and ICICI even co-operative sector banks like Kerala State Co-operative Bank are likely to announce a RML product very shortly.

“A RML need not be repaid by the borrowers during their lifetime. They will also continue to stay in their houses during their lifetime. Thereafter, an option is available to the legal heirs to repay the bank loan and redeem the property. If this option is not exercised, the bank will sell the property and liquidates the loan and surplus, if any, will be passed on to the legal heirs,” Shukla explained.

The interest rate on the RML currently varies from bank to bank, however, they are usually available at a rate comparable to the normal housing loan rates of that bank. For instance SBI’s RML carries a fixed interest rate of 10.75 percent.

Speaking to this website’s newspaper, Imtiaz Ahmed, AVP mortgages of Axis Bank said that there is a good demand expected for RML as senior citizens have hardly any other options left to explore a particular activity, which may need hard capital.

“Unlike in the Western countries when a retiree actually begins his second inning by planning long tours, a new project a profitable community activities etc, his Indian counterpart usually manages with a little interest or pension, which he may be entitled to and can hardly think of enjoying any liberties. We are also encouraging more and more senior citizens to avail a RML which will surely envisage fulfilling their cherished dream in their spare time,” Gita Srinivasan, working for a senior citizen welfare association, said.

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