Abstract: Reverse mortgage is a relatively new financial product which allows senior citizens to keep their house or

property as mortgage with a lender or a bank and transform a part of their home equity into tax free income. Reverse
Mortgage was introduced in 2007 by a draft norm released by National Housing Board, a subsidiary of Reverse Bank
of India. This study tries to explore the concept of Reverse Mortgage Loan (RML), the reasons why RML is still
unpopular in India. We try to study the conditions applicable for RML in India and focus on the key aspects before
applying for an RML. Our study clearly explains the side effects of taking an RML and also provide the essential
guidelines to the person seeking Reverse Mortgage Loan (RML). This case explains why the RML are so unpopular
in India in spite of being a big hit in other parts of the world. Adding to this we will also highlight the gaps behind
the failure in the execution of RML Our main objective is to layout the structure of RML and why it failed to get the
attention of the market in India.
Keywords: Reverse Mortgage, Home equity, Reverse Mortgage Loan

Introduction:
A Reverse Mortgage is a type of money related course of action between a 'Value Rich-Cash Poor' Borrower and a
Reverse Mortgage Lender. This plan enables older people to change over their generous house values into advances
as loans requiring no reimbursement until a future time. Simultaneously they will enable the borrowers to stay in
their homes until their demise, closeout of the house property or until they move out for all time. Interest gathers on
these advances yet no reimbursement of credit and advance interest is required during as long as any of the occasions
referenced above don't happen. As the borrower gets instalments, the measure of the obligation verified by the
Reverse Mortgage ascends after some time. This procedure of changing over house value into spendable money
while the house proprietor is as yet living in the house is called 'Home Equity Conversion' or basically Reverse
Mortgage.
Lenders offer Reverse Mortgages on the grounds that there is possibly huge and developing business sector as the
quantity of senior house proprietors is expanding in each nation. We will talk about the highlights and sorts of
Reverse Mortgages, look at regular Forward and Reverse home loans, and balance Reverse Mortgages with
Annuities.
Features of Reverse Mortgages
 Minimum Age Limit: Typically the borrowers should be more than 60 years of age. Lenders fix this age limit
duly considering the guidelines in the social security system and other welfare measures offered by the
government and also the, retirement age of the working class.
 Loan Amount: Maximum Loan Amount to borrowers depends on the house value, borrower’s age, cost of the
loan and the payment plan selected by the borrower. Typically, the loan amount or the Principal Limit is the
maximum lump-sum payment a borrower can receive or the net present value of monthly payments or Line
of Credit. The loan amount is restricted to percentage of the property value. In Roll up type of Reverse
Mortgages offered in UK, higher amounts are granted in return for a higher interest loan. In some other cases,
when the borrower get fewer amounts initially, further amounts will be made available depending on the
property value. However, there are some restrictions which limit the time at which the borrower can apply for
further advance.
 Loan Interest: Loan interest charged on the debt of the borrower can be fixed or adjustable. For Fixed Rate
Reverse Mortgages, the loan interest would remain same until it is repaid. In case of adjustable rates, the rates
are adjusted at defined time periods based on some reference rate like T-Bill rate. Interest rate caps for the
period as well as for life time are typically specified for these adjustable rates. In some cases as in Fixed
Repayment Mortgage in UK, there is no explicit interest rate, but borrower agrees that when the house is
sold, he will be pay the lender a higher sum than the amount borrowed. The higher amount will depend on the
age and life expectancy. However, when borrower dies, the lender may charge interest on this higher sum
from the date borrower die until the mortgage is actually repaid.
  Payment Options: Once the loan amount is determined, it will be disbursed according to the payment option
chosen. The borrower will have the typical options like receiving a lump sum amount or a series of monthly
payments or access line-of-credit.
 Repayment: No repayment is required on Reverse Mortgages as long as the borrower lives in the house as a
principal residence. The full loan balance becomes due and payable when the borrower sells the house or
permanently moves away or when the borrower dies. When the loan is payable due to death of the borrower,
borrower’s heirs can repay the outstanding loan and take title to the property or lender can sell the property
and pay off the loan. If the property value is more than the outstanding loan balance, the difference is paid to
the heirs.
 Debt Limit: The debt on a Reverse Mortgage equals all the loan advances received including any advances
used to finance the loan costs or pay off prior debt, plus all the interest that is added to loan balance. Even if
the loan balance grows to be greater than the home’s future value, the borrower’s debt is limited by the value
of the home. This feature is called the “NonRecourse” or “No Negative Equity Guarantee” and it protects the
borrower, his estate and heirs from “deficiency judgments,” that is, from being required to pay back more
than the home’s value.
 Loan Costs: Loan costs typically include an origination fee, appraisal fee, mortgage insurance fee, and other
closing costs. There are usually caps on these upfront costs, which may be financed as part of the Reverse
Mortgage.
 Mandatory Occupation: The borrower must occupy the property. The borrower’s income and credit
worthiness are not of concern because payments are made from the lender to the borrower.
 House ownership: Typically, lender does not own the house. The borrowers retain the title to the house and
are responsible for taxes, insurance and upkeep. In the Home reversions schemes sold in UK, the lenders buy
a share of the borrower property, so that there is transfer in the ownership to the lender.
 Other features: Prior to closing, the house is appraised to determine its value and to make sure that it meets
minimum property standards. In cases where repairs are needed, the cost of these repairs may be financed as
part of the loan.

Review of Literature
According to the reports of NHB, till 2013, switch home loan advances worth Rs. 1,800 crores have been endorsed
and credits worth Rs. 800 crores have just been dispensed after this plan got presented (Ghosh, 2013).
Notwithstanding the normal popularity and ease of use of this idea, just a few research studies have been directed.
The present research attempted to investigate the discoveries of following previously led inquiries about on Reverse
Mortgage.

Rajagopalan (2006) attempted to investigate the prospects for graduated Reverse Mortgage (RM) items in India,
even before the idea of Reverse Mortgage was even presented. He proposed that Reverse home loan, if accessible,
would offer an alluring choice to the older to back their utilization needs all alone, without the need of moving out or
stressing over obligation or reimbursement. He forewarned the forthcoming lenders to make couple of fundamental
strides before a pilot RM item could be presented, that included evaluation of potential interest in a restricted
geological region, exact appraisal of related legitimate, tax collection and administrative issues and exploratory
budgetary demonstrating to survey bank hazard and choices for overseeing it.

Srinivasan (2008) talked about the upsides and downsides of this rising item. The extent of the paper was to give a
general assessment of Reverse Mortgage from the monetary and social perspective. The negative factors and expense
suggestions have likewise been talked about. Different explanations behind the detached mentalities of the clients
have been depicted. He presumed that Reverse Mortgage can fill in as an aid to retirees as it can fill the need of an
advantageous wellspring of pay for retirees. He recommended that for the better intrigue of the item among senior
residents, a great deal must be offered on the structuring of this item.

Kumar, Divakaruni and Madhukar (2008) featured the significant highlights of Reverse Mortgage and the bank's
dangers engaged with this. They recognized a couple of potential objective sections to upgrade attractiveness of the
graduated Reverse Mortgage items in India and proposed to lead a study to evaluate its potential in various
topographies like Metros, Urban and Semi-urban territories. They opined that for better attractiveness, the overview
results could be used to plan new Reverse Mortgage items.

As indicated by Kang (2010), there has been a developing prominence of Reverse Mortgages among senior natives
who need money. The paper depicts the mechanics of graduated Reverse Mortgage credit, its advantages,
disadvantages and the costs (financing cost, shutting cost, a home loan protection premium (MIP), an adjusting
charge, and intrigue) included. The paper reasoned that if there should arise an occurrence of the demise of the
borrower, or when the borrower moves to another home inside a couple of years in the wake of getting the credit, the
advance can be over the top expensive as far as high financing expenses.

Michelangeli (2010) contended that old individuals in America are thinking about Reverse Mortgages as an approach
to ease their money related weights. He gathered information on single family units from the Health and Retirement
Study (HRS) to examine the normal monetary increases or misfortunes related with graduated Reverse Mortgages. In
spite of the prevalent view that graduated Reverse Mortgages are gainful for the senior residents, utilizing a blend of
four best in class scientific programming apparatuses, the investigation reasoned that Reverse Mortgages are
probably going to force huge misfortunes on house-rich however money poor family units. For such family units,
taking out the standard graduated Reverse Mortgage and obtaining the most extreme sum allowed lessens anticipated
utility, by and large, to a similar degree as a 14 percent misfortune in budgetary riches. During the most recent multi
decade, there has been a critical statistic change in India's populace because of globalization and improved
restorative office and way of life. As on 2009, the number of inhabitants in individuals over 60 years is evaluated to
be at 90 million, for example around 8% of all population. As per United Nations, it is evaluated that before the
finish of 2050, the number of inhabitants in individuals matured over 60 years will associate with 20 percent of all
out populace. With the evolving situation, advancing the graduated Reverse Mortgage plan would be an adjustment
in the attitude of senior natives, as the property legacy is profound established and it will be difficult to embrace the
insurance culture in financing the resigned life of senior residents (Suresha and Naidu, 2012). Venkatraman and
Mishra (2013) gave inside and out data on the graduated Reverse Mortgage plan and banks offering it. This aided in
understanding the significance of Reverse Mortgage Scheme in Indian setting. They likewise attempted to call
attention to that why this brilliant arrangement isn't getting prominent in India.

Nakajima and Telyukova (2014) examined Reverse Mortgages in an adjusted life-cycle model of retirement. They
found that normal welfare gain from Reverse Mortgage Loan is $885 per property holder. Their model inferred that
low-salary, low-riches and weakness families advantage the most, steady with observational proof.

India is encountering a statistic move with a maturing of the populace because of expanded life span rates. For some
more established Indian families, their biggest single resource is their essential spot of living arrangement (Daptardar
and Dasgupta, 2014). The creators concentrated on to some degree ignored territory that influences a developing area
of society and inspected different components impacting Reverse Mortgages, both on the interest and supply sides.
They attempted to comprehend the money related needs of more seasoned Indian and to what degree Reverse
Mortgages satisfactorily address their needs.
The scrutiny of the writing uncovered that however various articles have been composed on graduated Reverse
Mortgage yet a not many research studies have been directed to give experimental proof to the announcements made
in the examination articles. This investigation makes an endeavor to investigate different variables influencing the
decision of potential purchasers of Reverse Mortgage Loan in Indian setting.

3. Objectives and Research Methodology

This examination includes Descriptive Research utilizing auxiliary information gathered by Pahuja and Sanjeev. The
examination essentially goes for estimating the frame of mind of Potential Buyers towards graduated Reverse
Mortgage and further deciding different variables influencing the disposition of potential purchasers towards Reverse
Mortgage.

An organized survey containing 16 explanations estimated on a 5-point Likert scale going from 'firmly concur' to
'emphatically dissent' was created. The various explanations were created dependent on writing study in an iterative
way. The poll utilized for the example review was an organized and non-masked survey and comprised of two
noteworthy segments. The primary segment expected to catch the statistic profile of the respondent, the subsequent
part was worried about the factors of graduated Reverse Mortgage.

The example was chosen utilizing non-likelihood comfort examining method for the flow inquire about. The
examining paradigm incorporated the consideration of the people over the age of 40. The investigation accepted
them to be the potential clients (individuals matured over 40 as they begin contemplating their retirement arranging
alternatives).
Analysis and Result

Age
Frequenc Percen Cumulative
  y t percent
41-50
years 41 36.9 36.9
51-60
years 60 54.1 91
61-70
years 10 9 100

Gender
Male 68 61.3 61.3
Female 43 38.7 100

Educational Qualification
UG 4 3.6 3.6
Grad 49 44.1 47.7
PG 58 52.3 100

Income
<5lacs 12 11.1 11.1
5-10lacs 63 58.3 69.4
10-15lacs 23 21.3 90.7
>15lacs 10 9.3 100

From the Table 1, it is observed that majority of the respondents, i.e. 54.1% are in the age group of 51–60 years of
age, 36.9% in the age group of 41–50 years and 9% from the age group of 61–70 yrs. Gender-wise, 61.3% of the
respondents were male, and 38.7 % were female. Income –wise 58.3% were having 5–10 lacs, 21.3% were having
10–15 lacs, 11.1% were having below 5 lacs and 9.3% were having above 15 lacs. There were 52.3% having Post
Graduate qualification and 44.1% were Graduates.

Factor analysis was applied to analyse the factors that affect the attitude of buyers towards reverse Mortgage. To test
the data appropriateness for factor analysis the “Chi sqaure Test” was applied. A high value (between 0.5 and 1.0)
suggests that the data is adequate for factor analysis. In this case the value was .659 which is greater than 0.5 and
hence it proves the adequacy of data for Factor analysis.
H0: There is no significant relationship between the variables in the population.

H1: There is a significant relationship between the variables in the population.

In order to test the null hypothesis, Bartlett’s Test of Sphericity was applied which showed that the significance
value was 0.000 which is less than the 0.05, hence the null hypothesis (H0) was rejected, approx chi- square value is
740.984 which is adequate and hence it can be concluded that there is a significant relationship between the variables
in the population or in other words the variables are correlated with each other. This testified that the sample was
appropriate for factor analysis. Bartlett’s Test of Sphericity is very significant; it indicates the acceptance of the
components in the questionnaire.

Approx. Chi-Square 740.984

df 120
Sig. 0

Factors

S.no Statements Factor Name

It helps the elderly people

to stay independent when
1
it
comes to their self respect

Despite objections by
Children,
2
it helps them to be
self-dependent
Reverse Mortgage allows
elderly people to earn Financial
3 regularly Independence
without being dependent
on others
Bank does not retain the
home even if one of the
member dies and the
4
other
one is still living in that
particular home
The overall formalities of
Reverse Mortgage are
5
easily
fulfilled by the elderly.
A reverse mortgage allows
you to withdraw wealth
6
invested
in your home.
Reverse mortgage saves
7
your income tax Revenue
A Reverse Mortgage is an Returns
excellent financial
planning
8 tool for older
homeowners
to supplement their
retirement income
 Various types of risks and
high fees in reverse
9 mortgage
are one of the reasons
for not getting success.
It creates problem for old
age people to retain their Risk
10 home once mortgaged Involvement
with
the bank
Lack of awareness results
in poor response by senior
11
citizens for the reverse
mortgage products.
Reverse Mortgage is very
12
expensive loan option.
Reverse mortgages are
complex products and
13 difficult
for consumers to
understand. Complex
Structure
People do not prefer
reverse
mortgage because
14
their memories are
attached
with their homes
Even when Reverse
mortgage
loan balance becomes
15 larger than the home
value;
you do not have to move
out.
Ownership
Reverse mortgage gives
the homeowners to keep
titles to their homes until
16 they pass away, move, sell
their home or reach the
end
of their loan term.

Factor 1- Financial Independence: In the study it is observed that the first and most important factor determining the
effectiveness of Reverse Mortgage. It allows a regular income to the elderly people which helps them improve
quality of their life with being self dependent.
Factor 2- Revenue Returns: Another Factor, Revenue return confirmed that reverse mortgage is an excellent financial
option not only for their retirements but also for saving income taxes.
Factor 3- Risk Involvement: Buyers find that reverse mortgage is a risky proposition in terms of their understanding
of the product.
Factor 4- Complex Structure: The study shows that buyers viewed it as a costly affair and find difficulty in
understanding its features. This negatively affects the potential buyers to go for reverse mortgage

Factor 5- Ownership: Last factor emphasizes that the bank may promote this aspect of retention of ownership while
using their home and enjoying the benefits as well.

Conclusion
Reverse mortgage, though the concept is not even a decade old, is not getting the requisite popularity in India. The
study probed into various factors that affect its usage amongst the potential users. In total, five factors that affect the
attitude of potential buyers towards reverse mortgage have been identified i.e. Financial Independence, Revenue
Returns, Risk Involvement, Complex Structure and Ownership. While the banks should promote this product by
emphasizing on the factors like financial independence, revenue returns and ability to maintain the ownership, they
should work upon the factor like complex structure and risk involvement. The advertisements and awareness
campaigns should focus on these areas for increasing the popularity of the product.

The use of reverse mortgage is an important topic and is worthy of further investigation. This study is a nascent
attempt to explore various factors affecting the attitude of potential buyers of this product. A more detailed
evaluation of the growth factors including the impact of taxation on household decisions is recommended, that too on
a Nation-wide context. The scope of the study may be enhanced to further include a state-wise comparison amongst
users’ perception. Also, the economic investigation of drivers impacting both the demand and supply side of these
loans would be of interest.
References
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