7/30/2019 Reverse Mortgaging
1/19
REVERSE
MORTGAGING
Presented By-
DIVYA VERMANOOPUR GUPTA
PREETI
DHARMENDER
ROHIT
7/30/2019 Reverse Mortgaging
2/19
A type of mortgage in which a homeowner can
borrow money against the value of his or her home.
No repayment of the mortgage (principal or
interest) is required until the borrower dies or thehome is sold.
It provides income that people can tap into for
their retirement.
REVERSE MORTGAGING 2
7/30/2019 Reverse Mortgaging
3/19
Traditional Home Loan Reverse Mortgage Loan
One buys a house using
home loan
Every EMI one pays
increases his/her equity in
the house
Sufficient income is
required to service the debt
i.e. to pay EMI
One pledges the house
he/she owns for a RM Loan
The equity in ones house
decreases
No income is required as
no repayment is required
REVERSE MORTGAGING 3
7/30/2019 Reverse Mortgaging
4/19
Any house owner over 60 years of age is eligible
for a reverse mortgage.
The maximum loan is up to 60% of the value of
residential property. The maximum period of property mortgage is 20
years with a bank.
The borrower can opt for a monthly, quarterly,
annual or lump sum payments at any point, as perhis discretion.
4REVERSE MORTGAGING
7/30/2019 Reverse Mortgaging
5/19
The revaluation of the property has to be
undertaken by the bankonce every 5 years.
There is no tax on the amount received through
mortgage. Reverse mortgage rates can be fixed or floating.
REVERSE MORTGAGING 5
7/30/2019 Reverse Mortgaging
6/19
RM Loan was introduced in India in 2007
Punjab National Bank was the first Public Sector
Bank to come out with a Reverse Mortgage
concept based product for senior citizen titled PNBBaghban.
Eligibility Criteria:
The borrower should own the residential house/flat;
Should be an India citizen; &
Should be 60 years & above.
REVERSE MORTGAGING 6
7/30/2019 Reverse Mortgaging
7/19
Qualifying/ Maximum Amount Of Loan:
The qualifying amount of loan will depend on the
realizable value of residential property, after
maintaining margin of 20%. The maximum qualifying amount of loan shall
be restricted to Rs. 100 Lacs (along with
interest).
REVERSE MORTGAGING 7
7/30/2019 Reverse Mortgaging
8/19
Disbursement / Tenor Of Loan:
The loan shall be extended as regular fixed
monthly payments during the loan period. i.e. 10-
20 years or till the death of the last survivingspouse, whichever is earlier.
Reimbursement:
Loan to be recovered only after the death of boththe spouses & no loan repayment during the
lifetime of borrower.
REVERSE MORTGAGING 8
7/30/2019 Reverse Mortgaging
9/199
Senior citizen lives in his/her own house, needsbetter cash flow
Pledges rights to the property to the bank in returnfor regular income
Bank values house; loan amount is usually 90% ofthe house value for traditional reverse mortgages
(RM) loans & 60% in case of annuity RM
Monthly income stream starts. Income can be spilt
between an initial lump sum & monthly stream
After 20 years, the income stops but the customercan occupy the house till death. In case of annuity,the customers receives payment till death
The heir(s) have the option to pay back the loanamount & retrieve the house, or let the bank take
over the propertyREVERSE MORTGAGING
7/30/2019 Reverse Mortgaging
10/19
Punjab National Bank
(PNB)
National Housing Bank
(NHB) Dewan Housing Finance
Limited (DHFL)
State Bank of India (SBI)
Indian Bank
Central Bank of India
LIC Housing Finance
Andhra Bank
Corporation Bank Canara Bank
REVERSE MORTGAGING 10
7/30/2019 Reverse Mortgaging
11/19
No risk of default as there is no possibility of non-
payment unlike a home equity loan.
With RML, borrower will never owe more than the
home's value at the time the loan is repaid, even ifthe lenders have paid him/her more money than the
value of the home.
The amount received through reverse mortgage is
considered as loan & not income; hence it is tax free.
REVERSE MORTGAGING 11
7/30/2019 Reverse Mortgaging
12/19
Borrower can choose to receive loan money in any
form such as: lump sum, annuity, credit line or some
combination of the above.
There are no income qualifications to get a ReverseMortgage.
With a RM Loan, one retains home ownership &
the ability to live in ones home & for as long as one
wants.
REVERSE MORTGAGING 12
7/30/2019 Reverse Mortgaging
13/19
With increasing life expectancy the loan tenure of 20
yearsis too short, seniors who avail the facility at
the age of 60 foresee a discontinuation of income at
the age of 80.
Reverse mortgages are subject to higher interest
rates than most other types of mortgages.
Use of funds is directed by banks i.e. funds are not
allowed to be used for reinvestment or businesspurposes.
REVERSE MORTGAGING 13
7/30/2019 Reverse Mortgaging
14/19
The equity one holds in their home decreases as the
interest on the RM accumulates over the years.
The LTV is low, a senior who avails this facility,
usually gets lower than 70 percent of the value of thehouse.
Binding usage of property i.e. the eligibility
criterion requires the senior to primarily reside in the
property which is mortgaged. The senior has nooption of earning additional income from the house
by renting, etc.
REVERSE MORTGAGING 14
7/30/2019 Reverse Mortgaging
15/19
Positive Indians have a desire to
bequeath property to their heirs,
however social behavior is
changing with the economic
development & the financial
independence of the younger
generation.
In the time of medical
emergency or other financial
need senior citizens can take
advantage of the equity in their
homes & need not be dependent
on their offspring.
Negative Introduction of RM Loan
can lead to a diminished
growth of the charitable
institution which arestarted/operated largely
from the trusts that older
generations have left
behind.
The issues of fraud & the
safety of the elderly is
another area of concern.
REVERSE MORTGAGING 15
7/30/2019 Reverse Mortgaging
16/19
Bad & negligible marketing. Reluctance in taking loan on against the most valuable &
emotional asset - home. The borrower cannot sell, rent or move out of the home.
Origination costs are very high & become part of theinitial loan balance & accrue interest.
If the borrower outlives the fixed loan period, the regularcash flows will stop.
Borrower can only use the funds for purposes such as up-
gradation/ renovation of residential property, medicalexigencies i.e. use of RM Loan for speculative, trading &business purposes is not permissible.
REVERSE MORTGAGING 16
7/30/2019 Reverse Mortgaging
17/19
Alteration of the eligibility criteria which requires
the borrower to primarily reside at the mortgaged
residential property.
Removal of the criterion which directs the use offunds to the borrower.
There should be complete transparency & clear cut
regulatory norms for benefit of burrower.
Aggressive marketing measures have to be taken upto bring the conceptual awareness.
REVERSE MORTGAGING 17
7/30/2019 Reverse Mortgaging
18/19
7/30/2019 Reverse Mortgaging
19/19
Top Related