Borrowers and lenders feel reverse mortgages lack sheen

Reverse mortgage, a loan product to help senior citizens supplement their income after retirement, came into existence more than a decade ago.

Published: 08th April 2019 08:56 AM  |   Last Updated: 08th April 2019 08:56 AM   |  A+A-

By Express News Service

MUMBAI: Reverse mortgage, a loan product to help senior citizens supplement their income after retirement, came into existence more than a decade ago. The scheme, designed by the National Housing Bank (NHB), lets senior citizens mortgage the property they reside in, to raise either a lump sum or periodic payments from a bank or financial institution. However, it has fewer takers as there are issues both the borrowers and lenders face.

Most banks have minimum age limit fixed at 60; for the younger spouse 55 or 58; and loan tenure of 10-15 years. The product is not easy to understand, so NHB runs counselling centres in major cities. The banks are also nudged to counsel borrowers. 

Currently, all the top public sector banks and a few financial institutions offer reverse mortgage; but they may do so only to the extent of the targets they have to meet and do not sell the product effectively. The loan amount depends on the borrower’s age, the value of the house and the prevailing rate of interest. Even if the disbursement of the loan is carried out on a monthly basis, there are no tax implications.

The borrower has the flexibility to repay the principal amount, together with accumulated interest, at any point of time and repossess the property without any prepayment charges. The spouse can be a co-borrower; in that case, either survivor can continue to live in the house even after the demise of one. After the demise of both the borrowers, the heirs can either repossess the house by repaying the loan or opt for a sell-off by the lender and settle with a surplus after adjusting the principal amount and accumulated interest.

If the borrower lives longer than the maximum tenure of 15 years, the lender will not make any more payments, but the borrower can continue to occupy the house. With life expectancy going up, lenders worry about the prolonged period for loan recovery.

Apart from the emotional aspects of bequeathing property to heirs, there are other practical concerns. Many a time the borrower feels the valuation of the property is low, but the lender has to stay conservative, keeping the long-term nature of the loan and risks involved. Also, the upper cap for the loan currently stands at Rs 1 crore. The interest rate is compounded so that the loan amount would go up. Unless the government considers this a social security scheme and brings in an element of subsidy, this may not be an attractive proposition, said an industry veteran.

The risks the lender faces are: what if the value of the house depreciates over the long-term and falls below the value of the loan? They cannot ask the borrower to pay more and have to take the hit on their books. They also worry about any potential litigation from heirs at the end of the tenure.

Stay up to date on all the latest Business news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp