reverse mortgaging

7/30/2019 Reverse Mortgaging

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REVERSE

MORTGAGING

Presented By-

DIVYA VERMANOOPUR GUPTA

PREETI

DHARMENDER

ROHIT


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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


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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



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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


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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.



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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.



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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).



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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.



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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


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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



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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.



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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.



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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.



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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.



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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.



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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.



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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.



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reverse mortgaging

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