With urbanization, India is fast moving towards the concept of nuclear families. This has left many senior citizens on their own, who are forced to depend on their scarce means of finances. The situation has given way to the idea of monetizing from the house, which is one of the most common possessions of Indians. One can get a regular cash flow under the reverse mortgage scheme, which also allows the borrower to retain ownership and occupancy.
Under the scheme, a borrower is not required to service the loan during his lifetime, nor has to repay the borrowed sum as principal or interest payment. The liability arises only when the borrower dies or leaves the house permanently. The lender settles the liability either through the sale of the house or the heir of the borrower settles the loan amount in full.
1) The scheme first came into existence under the Finance Act 2008, which made all payments under the scheme tax-exempt.
2) In 2013, the scheme was amended, following which the lenders were directed to disburse the loans to an annuity sourcing institution like the LIC or any other insurer registered with IRDAI.
3) The amendment also raised the tenure of the loan from 20 years to the lifetime of the borrower.
• The scheme failed to attain popularity on account of the conservative mindset of the Indians, who are against the mortgage of the house and are in favor of keeping it safe for future generations to inherit.
• Banks do not consider inherited property under the scheme due to a potential threat of encumbrance that may arise in future.
• Income on the loan is not attractive as interest rates depend on the monetary cycle.
• Senior citizens may find the process of reverse mortgage cumbersome, and the documentation might appear difficult to comprehend from the perspective of a common man in rural areas.