Reverse Mortgage Loan Blog

Mumbai, INDIA — Reverse mortgage, a scheme that helps senior citizens get a steady income stream by mortgaging their house properties, will now fetch three times the monthly income they would have got earlier.

All thanks to Star Union Dai-ichi Life Insurance, which has designed a safety net for banks offering reverse mortgage loans, thereby helping them offer higher monthly income.

Under the reverse mortgage scheme, a senior citizen owning a house can get a fixed amount every month against his home while continuing to stay in the house, without paying any interest to the bank during the loan term. The loan amount, along with the interest charged, is ultimately settled by the bank by selling the house after the demise of the person who has taken the loan and his/her spouse.

“In the earlier product, the calculation of payment to senior citizens was based on a 20-year fixed loan tenure from interest alone. The amount given to the senior citizen was low. Now, as an insurance company has been using actuarial calculations (depending on the science of how long a person lives in a country in a particular age group), the amount given each month is three-folds higher. That is different and there is also a lot of flexibility,” said P R Jaishankar, assistant general manager at National Housing Board, which has set the guidelines on reverse mortgage scheme.

So, if a senior citizen owns a house whose market price today is Rs 50 lakh, he could get a loan up to Rs 37.5 lakh (75% of the house price), rendered into monthly instalments.

Now, thanks to the insurance cover provided by Dai-ichi for the loan granted, banks would be able to provide a pension-like support system assuming a higher valuation for the same property. So, where a 60-year old could have got Rs 10,000-18,000 earlier, depending on whether he wanted his children to pay back the loan or the house to be sold by the bank, he would now be able to claim Rs 33,000 per month.

The amount will increase as the age climbs. So a 75-year-old would get a higher amount than a 60-year-old taking a reverse mortgage loan.

Central Bank of India has already tied up with Star Union Dai-ichi. Another home loan provider, which initially offered the reverse
mortgage scheme, is also looking forward to joining hands with the insurance company.

Because of this tie-up, senior citizens can even pay off the loan in case they get money from other savings and still continue to get some monthly amount. One can get a lump sum of a maximum of 25% of the loan to fulfill immediate needs.

“This is the first such product in the world. In the US where the reverse mortgage scheme has been operating for a long time, too, there is no insurance product to cover it. The department of housing and urban development in the US has evinced a lot of interest in this new product,” Jaishankar adds.

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