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Senior Citizens are an increasing component of the Indian society and dependency in old age
is increasing in the country. While on the one hand, there is significant increase in longevity
and low mortality, on the other hand cost of good health care facilities is spiraling and there is
little social security. Senior Citizens need a regular cashflow stream for supplementing
pension/other income and addressing their financial needs. Secular increase in residential
house prices has created considerable ³home equity ³wealth. For most Senior Citizens, the
house is the largest component of their wealth.

Conceptually, Reverse Mortgage seeks to monetize the house as an asset and specifically the
owner's equity in the house. The 
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 !&'. The Senior Citizen borrower is not required to
service the loan during his lifetime and therefore does not make monthly repayments of
principal and interest to the lender. On the borrower's death or on the borrower leaving the
house property permanently, the loan is repaid along with accumulated interest, through sale
of the house property. The borrower(s)/heir(s) can also repay or prepay the loan with
accumulated interest and have the mortgage released without resorting to sale of the property.
Reverse mortgages are one product within the ³Equity Release´ category.

()c !  !c are to be extended by Primary Lending Institutions

(PLIs) viz. Scheduled Banks and Housing Finance Companies (HFCs) registered with NHB.
The PLIs reserve their discretion to offer Reverse Mortgage Loans.

*)  +,

y Should be Senior Citizen of India above 60 years of age.

y Married couples will be eligible as joint borrowers for financial assistance. In such a
case, the age criteria for the couple would be at the discretion of the PLI, subject to at
least one of them being above 60 years of age. PLIs may put in place suitable
safeguards keeping into view the inherent longevity risk.
y Should be the owner of a self- acquired, self occupied residential property (house or
flat) located in India , with clear title indicating the prospective borrower's ownership
of the property.
y The residential property should be free from any encumbrances.
y The residual life of the property should be at least 20 years.
y The prospective borrowers should use that residential property as permanent primary
residence. For the purpose of determining that the residential property is the
permanent primary residence of the borrower, the PLIs may rely on documentary
evidence, other sources supplemented by physical inspections.

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y The amount of loan will depend on market value of residential property, as assessed
by the PLI, age of borrower(s), and prevalent interest rate.
y The table given hereunder may serve as an indicative guide for determining loan
eligibility :
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60 ± 65 40%
66 ± 70 50%
71 ± 75 55%
Above 75 60%

y The above table is indicative and the PLIs will have the discretion to determine the
eligible quantum of loan reckoning the µno negative equity guarantee' being provided
by the PLI.
y The PLI may consider ensuring that the equity of the borrower in the residential
property (Equity to Value Ratio - EVR) does not at any time during the tenor of the
loan fall below 10%.
y The PLIs will need to re-value the property mortgaged to them at intervals that may
be fixed by the PLI depending upon the location of the property, its physical state etc.
Such revaluation may be done !!#'#!$the quantum of loan
may undergo revisions based on such re-valuation of property at the discretion of the
lender.

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Any or a combination of the following:

y Periodic payments (monthly, quarterly, half-yearly, annual) to be decided mutually

between the PLI and the borrower upfront
y Lump-sum payments in one or more tranches
y Committed Line of Credit, with an availability period agreed upon mutually, to be
drawn down by the borrower

Lump-sum payments may be made conditional and limited to special requirements

such as medical exigencies, home improvement, maintenance, up-gradation,
renovation, extension of residential property etc. p
 



 


 
   


 


  


 







  

 
 
 

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It is important that nature of payments be decided in advance as part of the RML

covenants. PLI at their discretion may consider providing for options to the borrower
to change.

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The loan amount can be used for the following purposes:

y Xp gradation, renovation and extension of residential property.

y For uses associated with home improvement, maintenance/insurance of residential
property
y Medical, emergency expenditure for maintenance of family
y For supplementing pension/other income
 y Repayment of an existing loan taken for the residential property to be mortgaged
y Meeting any other genuine need

Xse of RML for speculative, trading and business purposes shall not be permitted

-).' !,Maximum 15 years.

0) c!,The interest rate (including the periodic rest) to be charged on the RML to
be extended to the borrower(s) may be fixed by PLI in the usual manner based on risk
perception, the loan pricing policy etc. and specified to the prospective borrowers. Fixed and
floating rate of interest may be offered by the PLIs subject to disclosure of the terms and
conditions in a transparent manner, upfront to the borrower.

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y The RML shall be secured by way of mortgage of residential property, in a suitable

form, in favour of PLI.
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y The residential property should comply with the local residential land-use and
building bye laws stipulated by local authorities, with duly approved lay-out and
building plans.
y The PLI shall determine the Market Value of the residential property through their
external approved valuer(s). In-house professional valuers may also be used subject to
adequate disclosure of the methodology.
y The valuation of the residential property is required to be done at such frequency and
intervals as decided by the PLI, which in any case shall be !!once every five
years. The methodology of the revaluation process and the frequency/schedule of such
revaluations shall be clearly specified to the borrowers upfront.
y PLIs are advised not to reckon expected future increase in property value in
determining the amount of RML. Should the PLIs do so in their best commercial
judgement, they may do so under a well defined Policy approved by their Board and
based on professional advice regarding property prices.

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As a customer-friendly gesture and in keeping with international best practices, after the
documents have been executed and loan transaction finalized, Senior Citizen borrowers may
be given up to three business days to cancel the transaction, the ³right of rescission,´. If the
loan amount has been disbursed, the entire loan amount will need to be repaid by the Senior
Citizen borrower within this three day period. However, interest for the period may be
waived at the discretion of the PLI.

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y The PLI will pay all loan proceeds directly to the borrower, except in cases pertaining
to retirement of existing debt, payments to contractor(s) for the repairs of borrower's
 property, or payment of property taxes or hazard insurance premiums from the
borrower's account set aside for the purpose.
y In case the residential property is already mortgaged to any other institution, the PLI
may, at its discretion, consider permitting use of part proceeds of RML to
prepay/repay the existing housing loan. The loan amount will be paid directly to that
institution to the extent of the loan outstanding with that institution with a view to
release the mortgage.
y (
 The loan will be extended as regular monthly, quarterly, half-yearly or
annual periodic cash advances or as a line of credit to be drawn down in time of need
or in lumpsum.
y The PLI will have the discretion to decide the mode of payment of the loan including
fixation of loan tenor, depending on the state and market value of the property, age of
the borrower and other factors. The rationale behind the decision of mode of payment
and fixation of the loan tenor shall be clearly disclosed to the borrowers.

(*) ,

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")They may also consider making available a tool kit to illustrate the potential
effect of future house values, interest rates and the capitalization of interest on the loan.

The closing costs may include the customary and reasonable fees and charges that may be
collected by the PLIs from the borrower. The cost for any item charged to the borrower shall
not normally exceed the cost paid by the lender or charged to the lender by the provider of
such service(s). Such items may include:

y Origination, Appraisal and Inspection Fees. The borrower may be charged pro-rata
origination, appraisal and inspection fees by the PLI /appraiser.
y Verification Charges of external firms
y Title Examination Fees
y Legal Charges/ Fees
y Stamp Duty and Registration Charges
y Property Survey and Valuation charges

A detailed schedule of all such costs will clearly be specified and provided to the prospective
borrowers upfront by the PLIs.

(‰)' !

y The loan shall become due and payable only when the last surviving borrower dies or
would like to sell the home, or permanently moves out of the home for aged care to an
institution or to relatives. Typically, a "permanent move" may generally mean that
neither the borrower nor any other co-borrower has lived in the house continuously
for one year or do not intend to live continuously. PLIs may obtain such documentary
evidence as may be deemed appropriate for the purpose.
y Settlement of loan along with accumulated interest is to be met by the proceeds
received out of Sale of Residential Property.
y The borrower(s) or his/her/their estate shall be provided with the first right to settle
the loan along with accumulated interest, without sale of property.
 y A reasonable amount of time, say up to 2 months may be provided when RML
repayment is triggered, for house to be sold.
y The balance surplus (if any) remaining after settlement of the loan with accrued
interest, shall be passed on to the estate of the borrower.

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y The borrower(s) will have option to prepay the loan at any time during the loan tenor.
y There will not be any prepayment levy/penalty/charge for such prepayments.

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y The borrower(s) will continue to use the residential property as his/her/their primary
residence till he/she/they is/are alive, or permanently move out of the property, or
cease to use the property as permanent primary residence.
y „
 
  

  The PLIs shall ensure that all reverse mortgage loan
products carry a clear and transparent µno negative equity' or µnon-recourse'
guarantee. That is, the Borrower(s) will never owe more than the net realizable value
of their property, provided the terms and conditions of the loan have been met.
y m


 ,The PLIs shall enter into a detailed loan agreement setting out
therein the salient features of the loan mortgage security and other terms and
conditions, including disbursement and repayment of the loan, in addition to the usual
provisions, which are ordinarily incorporated in a mortgage loan document.
y The loan agreement may also include a provision that the borrower shall not make any
testamentary disposition of the property to be mortgaged and even if it does so, it
would be subject to the mortgage created in favour of the lending institution. In such a
case, the borrower shall make a testamentary disposition of the mortgaged property in
favour of any of his/her relatives, subject to the discharge of the mortgage debt by
such legatee and a statement that the heirs shall not be entitled to challenge the
validity of the mortgage as also the right of the mortgagee to enforce the mortgage in
the event of death of the borrower unless the legal representative is willing to
undertake the responsibility for discharging in full the amount of loan and accrued
interest thereof.
y In addition, the PLI may also consider obtaining a Registered Will from the borrower
stating, inter-alia, that he/she has availed of RML from the PLI on security by way of
mortgage of the residential property in favour of the PLI, meaning thereby that in the
event of death of the borrower (and co-borrower, if any), the mortgagee is entitled to
enforce the mortgage and recover the loan from the sale proceeds on enforcement of
security of the mortgage. The surplus, if any, has to be returned to the heirs of the
deceased borrower(s).
y The PLIs may consider taking an undertaking from the prospective borrower that the
³Registered Will´ given to the PLI is the last ³Will´, prepared by him/her at the time
of availment of RML facility as per which the property will vest in his/her spouse
name after his/her demise. The borrower will also undertake not to make any other
µWill' during the currency of the loan which shall have any adverse impact on the
rights created by the borrower in the PLI's favour by way of creation of mortgage on
the immoveable property mentioned under the loan documentation for covering loan
to be allowed to his/her spouse and interest thereon, even after the borrower's death.
y The PLI will ensure that the borrower(s) has insured the property against fire,
earthquake, and other calamities.
 y The PLI will ensure that borrower(s) pay all taxes, electricity charges, water charges
and statutory payments.
y The PLIs will ensure that borrower(s) are maintaining the residential property in good
and saleable condition.
y The PLI may reserve the option to pay for insurance premium, taxes or repairs by
reducing the homeowner loan advances and using the difference to meet the
obligations/expenditures.
y The PLI reserves the right to inspect the residential property/premises or arrange to
have the residential property/premises inspected by its representatives any time before
the loan is repaid and borrower(s) shall render his/her/their cooperation in respect of
such inspections.

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y The PLI shall obtain legal opinion for ensuring clarity on the title of the residential
property.
y The PLI shall also endeavour to obtain indemnity on title related risks, as and when
such indemnity products are available in India .

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y The loan shall be liable for foreclosure due to occurrence of the following events of
default.
u If the borrower has not stayed in the property for a continuous period of one
year
u If the borrower(s) fail(s) to pay property taxes or maintain and repair the
residential property or fail(s) to keep the home insured, the PLI reserves the
right to insist on repayment of loan by bringing the residential property to sale
and utilizing the sale proceeds to meet the outstanding balance of principal and
interest.
u If borrower(s) declare himself/herself/themselves bankrupt.
u If the residential property so mortgaged to the PLI is donated or abandoned by
the borrower(s).
u If the borrower(s) effect changes in the residential property that affect the
security of the loan for the lender. For example: renting out part or all of the
house; adding a new owner to the house's title; changing the house's zoning
classification; or creating further encumbrance on the property either by way
taking out new debt against the residential property or alienating the interest
by way of a gift or will.
u Due to perpetration of fraud or misrepresentation by the borrower(s).
u If the government under statutory provisions, seeks to acquiring the residential
property for public use.
u If the government condemns the residential property (for example, for health
or safety reasons).

(1)"'. 7.!#,

y The PLI shall have the option to revise the periodic/lump-sum amount at such
frequency or intervals based on revaluation of property, which in any case shall be at
least once every five years.
 y Borrower shall be provided with an option to accept such revised terms and
conditions for furtherance of the loan.
y If the Borrower does not accept the revised terms, no further payments will be
effected by the Lender. Interest at the rate agreed before the review will continue to
accrue on the outstanding amount of the loan. The accumulated principal and interest
shall become due and payable as mentioned in clauses (13) and (17).

(†) ! '!+,

y The PLIs will observe and maintain high standards of conduct in dealing with the
Senior Citizens and their families and treat them with special care.
y The PLIs shall clearly and accurately disclose the terms of the RML without any
ambiguity.
y The PLIs should clearly explain to the prospective borrowers the terms and conditions
of RML, the methodology followed for valuation of the residential property, the
method of determination of eligible quantum of loan, the frequency of re-valuation
and review of terms and all related aspects of the RML.
y The PLIs may suggest to the Senior Citizens to nominate their µpersonal
representatives' usually a close relative who the PLI can contact in the event of any
potentialities.
y The PLIs may counsel the prospective borrowers about the possible impacts to the
borrowers due to adverse movements in interest rates and property price fluctuations.
y The PLIs shall clearly specify all the costs to the Borrower(s) that are associated with
the transaction.
y The PLIs shall in no way assert or imply to the borrower(s) that the borrower(s) is/are
obligated to purchase any other product or service offered by the PLI or any other
associated institution in order to obtain a reverse mortgage loan.
y Take reasonable steps to check out the background and procedures of third parties
before accepting referrals of business from them, and refuse to accept referrals from
those that are found unacceptable. Members shall disclose to clients any third party
with a financial interest in the reverse mortgage transaction.
y Overall, the PLIs shall treat the Senior Citizen borrower fairly.

Senior citizens can now get a reverse mortgage loan from SBI

By Joseph Samson

Oct 11, 2007

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A reverse mortgage loan has been announced as a new loan product by State Bank of India (SBI).
Exclusively offered to senior citizens, above the age of 60, this reverse mortgage loan is provided
against self-owned and occupied houses. The loan can be availed as monthly or quarterly payments
or as a lump sum payment.

Reverse mortgage, a new concept in India has been a very popular loan product in the west. The
concept is simple, a senior citizen who holds a house or property, but lacks a regular source of
income can mortgage his property with a bank or housing finance company (HFC) and the bank or
HFC pays the person a regular payment. The good thing is that the person who ͚reverse mortgages͛
his property can stay in the house for his life and continue to receive the much needed regular
payments. So, effectively the property now pays for the owner.

The reverse mortgage loan can also be given jointly if the spouse is alive and above 58 years of age.
No repayment has to be made to the bank during the borrower's lifetime. Senior citizens taking a
reverse mortgage can continue to live in their homes for their entire life. After the death of the
borrower, either the legal heirs can repay the reverse mortgage and take back the claim on property
or the bank sells the property to recover its dues. If there is any surplus amount available after
selling the property, it will be disbursed to the legal heirs.

SBI has decided to launch this scheme from October 12, and it will be available from all branches of
SBI. The reverse mortgage loan product from SBI will have a fixed interest rate of 10.5 percent per
annum and it can be revised at the end of every 5 years along with revaluation of security and re-
adjustment of loan installments, if necessary.

For a loan of one lakh, the monthly payment to the borrower on a 10 year loan is Rs 468 and on a 15
year loan it would be Rs 225. Similarly for a loan of one lakh, the quarterly payment to the borrower
on a 10 year loan is Rs 1,423/- and on a 15 year loan it would be Rs 687.

Other players like LIC Housing finance are also gearing up to launch this product. SK Mitter, director
and chief executive of LIC Housing Finance told the media persons, that there is a market for reverse
mortgage and they are ready with the product as per the guidelines issued by National Housing Bank
and will launch it in some time. Currently Dewan Housing Finance Limited (DHFL) is the only
company, which offers reverse mortgage loans.

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Till recently senior citizens of India did not have a way to liquidate their most significant and
largest asset the house but now people like the Kumars can take a lump amount as a loan by
pledging their home. They can also opt for this amount on a periodic basis«monthly,
quarterly etc. They will never have to repay this money in their lifetime and they can
continue to live in the house.

Imagine this scenario, an old couple the Kumars living all by themselves in Trichy, India
with all their five children abroad, two of them settled there, another two who have bought
houses in Pune, wishing to settle down there and the fifth wanting to live in Chennai! The
couple had invested their life¶s savings to build a palatial seven bedroom house, thinking
naively at that point in time, that all their children were going to live together under one roof.
The Kumars get invited often by their children abroad and they spend nearly the whole year
spending time with their five children at different times of the year. They probably stay in
their house close to only four months in a year. They often crib about maintaining their house
and the expenses that are incurred because of that.

Such scenarios are very common in Xrban India, where people always move away from their
home town to find jobs and further their careers. The house becomes a place to visit, rather
than stay for them. In such instances, the concept of reverse mortgage would fit the bill very
well.

Till recently senior citizens of India did not have a way to liquidate their most significant and
largest asset the house but now people like the Kumars can take a lump amount as a loan by
pledging their home. They can also opt for this amount on a periodic basis«monthly,
quarterly etc. They will never have to repay this money in their lifetime and they can
continue to live in the house. At their end of their lifespan, the property will be sold and the
loan amount and interest recovered. If the value of the property diminishes over time, no one
is liable to repay the loss, the bank or housing finance company incurs it. On the other hand,
if the value of the house appreciates and returns exceed interest and principal repaid, then the
amount is passed on to the heirs.

In the Kumar¶s case it makes perfect sense for them to opt for a reverse mortgage, as it is
clear none of the children, wish to reside in the house. Also to maintain the costs and be able
to manage the expenses of a retired life, the money that comes from reverse mortgage will be
a welcome relief for them. Other than speculative purposes, the money can be utilised to meet
their everyday needs, including renovation of the property, medical expenses etc.

A very popular concept abroad, reverse mortgage was recently introduced In India. National
Housing Bank (NHB), which is a subsidiary of Reserve Bank of India (RBI) has released the
tentative norms of this loan scheme.

According to these guidelines, a senior citizen who is above 60 years of age is eligible to
apply for a reverse mortgage loan and avail 60% of the value of the residential property he
resides in and retain the right to continue to reside there. The maximum tenure for this loan
scheme is 15 years.

The bank is allowed to re-evaluate the property once every five years and the apply the
changes to the loan amount. At the end of 15 years, the borrower can continue to live in that
house but will not be eligible for further disbursement of the periodic payments from the
bank, if that has been the case.

As the concept is new in India and a lot many factors like the loan amount, interest etc. is left
to the discretion of the Bank, it is best to read the fine print carefully and ensure that the both
parties have understood the terms and conditions thoroughly before proceeding with the
arrangement.

2. Reverse mortgage scheme ideal for senior

citizens

Comment Mail to friend

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A reverse mortgage is a loan that enables senior home owners aged above 60 years to convert
part of their home equity in to income with out having to sell their home, give up their title to
it or make monthly mortgage payments. The National Housing Bank, a subsidiary of the RBI,
and a facilitator for home home finance in India has set some guidelines.

The prospective borrowers should be senior citizen of India above 60 years of age. Married
couples can opt for financial assistance as joint borrowers. In such a case the age criteria for
the couple will be at the discretion of the lender with at least one of them being above 60
years. Normally loan is offered for a period of 15 years.

http://economictimes.indiatimes.com/quickiearticleshow/3282580.cms

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Estimates show that India¶s old age population will
increase to 113 million by 2016, 179 million by 2026,
and 218 million by 2030. Life expectancy, currently at
77 years could increase to around 80 years by 2020.
With the increasing old age population and life
expectancy, Reverse Mortgage introduced by Budget
2007, seems to have a potential market in India. This
concept, although new in India is very popular in
countries like Xnited States, Canada and Australia,
while it is in infancy in Europe and Singapore.

Reverse mortgage is a loan given to senior citizens by converting the equity in a house
property into an income stream. The scheme involves the borrowers (senior citizens)
pledging their house property to a lender (scheduled bank or HFC) in return for a lump sum
or periodic payments spread over the borrower¶s lifetime. The home owner is not obliged to
repay the loan during his lifetime. On his death or leaving the house permanently, the loan is
repaid along with accumulated interest, through sale of the house property. Any excess
amount will be remitted to the borrower or his heirs. The lumpsum or periodic payments can
be utilized by the borrower as per his needs but not for speculative purposes.

Reverse mortgage is aptly named because the payment stream is ³reversed.´ Instead of
making monthly payments to a lender, as with a regular mortgage, a lender makes payments
to the borrower. Xnlike a regular mortgage, the borrower can continue to stay in his
mortgaged home during his entire life span without any fear of eviction even after the tenure
expires.
Recently, National Housing Bank (NHB), a subsidiary of Reserve Bank of India (RBI),
announced its final operational guidelines on reverse mortgage. Following are some of the
key features of the scheme:

y The facility will be made available to those above the age of 60 years; oint
ownership with spouse is also permitted even if one of the borrowers is below 60.
y The scheme applies only to self-acquired and self-occupied properties, owned by
senior citizens and having a residual life of atleast 20 years.
y The amount of loan would depend on the market value of residential property, as
assessed by the primary lending institution (PLI), age of borrower and prevalent
interest rate.
y The PLI should ensure that the borrower¶s equity in the residential property does not
fall below 10% during the tenor of the loan.
y The borrower will not be required to pay any penalty towards prepayment of loan.
y The lending institutions can frame their respective internal policy guidelines but the
same should be fully disclosed to the potential borrowers upfront.
y The amount received through reverse mortgage is considered as loan and not income;
hence the same will not attract any tax liability.

Reverse mortgage is definitely a financial helpline for senior citizens enabling them to lead
their lifestyle and meet their consumption needs without being dependent on anyone. It is the
social security scheme for the benefit of senior citizens post-retirement. With very few
universal old age social security schemes, reverse mortgage might have a potential market.
The loan is given without any income criteria at an age where normal loans are not available.
Perhaps, the most important advantage being that the borrower retains the ownership title of
the house making it all the more popular among Indians who have a natural instinct for own
home.

However, on the flip side, traditional joint family system, stronger bequeath motive and
widespread undervaluation of real estate properties involving unaccounted money, tax
evasion and benami holdings can be major deterrents for the scheme to take off.

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As a person moves towards the twilight years of life, one of the greatest concerns is keeping
up with the financial needs of the '!'. Existing data shows that in India,
only /;'"-2#!'!  ! !" from their previous
employers. Of course, most of the state governments provide pension schemes for the elderly.
But the amount of such "'' to provide for the overall financial
requirements.
Senior Citizens need Financial Security

As a measure to supplement the existing source of income, the Reverse Mortgage was
introduced in the 6+ *220321 as a special tool for the senior citizens. It is meant
to provide a steady stream of income to citizens in their twilight years. Also, with the present
state of social security in India, it is imperative that a person makes sufficient provisions for
the retired life.

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In an !# ! , a lump sum is provided at the beginning of the tenure, which is to

be paid back over the tenure as monthly installments or EMIs as they are called. The EMI has
both a principal and an interest component. The ""#%"!!! with the bank.
As the name indicates, Reverse Mortgage works in a reverse manner, that is, a regular
installment is paid to the owner over the loan period. The bank recovers its amount with
interest after the loan period is over, or after the borrowers vacate the house willingly or after
the death of the borrower, whichever of the above is LATER.

Any citizen over -2#! of age is eligible, provided the property is self-owned, residential
and free of encumbrances. ""#"!#'
. Married couples can apply as joint borrowers, if at least one of them is 60 years
or above in age.

Reverse Mortgage: Your House as an Income Option

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The loan amount, which will be determined as a proportion of the assessed value of the
property, will depend on

y market value of the property,

y age of the borrower(s) and
y prevalent rate of interest.

The loan amount can be given as

y a periodical payment (monthly, quarterly or yearly), or

y as a lump sum, or
y as a line of credit.

Thus, we see that the reverse mortgage can be a powerful tool in supplementing the current
source of income for the senior citizens, and provides them with flexible options for availing
and repayment of the loan.

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Having said that, Reverse Mortgage has# in India. Mostly, reverse

mortgage is popular in western countries. The reasons for this are social, rather than financial.
In the Indian society, the residential house is also invested with a lot of emotions and
sentiments. It is more than a mere house; it is a HOME! For an overwhelming majority of
Indians, a self-owned house is the culmination of a life-long dream, hard-work and
investments. In fact, most of the times it is the ONLY major investment that people make. As
per our societal norms, very often children chose to stay with the parents, even if they are
independent and employed. The residential house is bequeathed to the children as part of will
or the final settlement. As such, the senior citizens become almost duty-bound to retain the
ownership of the house. All these facts combine together to weaken the case for reverse
mortgage in India.

Yet, a beginning seems to have been made. As of yet, most of the customers who are opting
for reverse mortgage in India belong to the upper-middle class, who have a self-owned house,
and their children are employed and settled elsewhere. With the passage of time, we are
likely to see more people going for the option of the reverse mortgage.

NHB offers senior citizens a new reverse mortgage product

Moneylife Digital Team

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The National Housing Bank (NHB), along with the Central Bank of India and Star Xnion
Dai-ichi have launched a new Reverse Mortgage product, which, for the first time, offers
senior citizens a real possibility of encashing the value of their homes, by getting a regular
income from it, while still living in it until the end of their lives.

Reverse Mortgage (RM), as the name suggests, is a product for senior citizens. It is defined
as an agreement by which a homeowner borrows against the equity in his home and receives
regular tax-free payments from the lender. The property is assessed and the company offering
the RM decides on a fixed monthly instalment to be paid against it, which includes interest on
the loan against the property. The person going in for this product will continue to live in that
home for his/her lifetime along with his/her spouse. On the demise of the homeowners, their
heirs have the option of reclaiming the property by paying off the outstanding loan with
interest.

This product is a boon in the post-liberalisation era, where senior citizens have suffered
deterioration in their lifestyles, because most of their savings are locked in their homes; high
inflation and volatile interest rates have depleted their other income. In a nutshell, RM is the
exact opposite of a conventional mortgage.

The new product was introduced by PR aishankar, assistant general manager of NHB at a
brain-storming session at Moneylife Foundation with over 20 of the leading NGOs working
with senior citizens²including Dignity, Helpage, Silver Innings and the Family Welfare
Agency²attending the proceedings.

Mr aishankar's presentation explained in detail how the new product was far superior to the
earlier offerings. He said that this product, the Sud Life Reverse Mortgage Loan/Annuity
Plan was being offered with Central Bank (of India) and Star Xnion Dai-ichi Life Insurance.
He credited NHB chairman S Sridhar for his untiring efforts in structuring a product,
whereby the risk involved is distributed between the bank and the insurer.
The value of the property is assessed at 60% for a 60-year-old and rises to 75% for a 75-year-
old. Mr aishankar said that property worth Rs50 lakh can fetch a senior citizen anywhere
between Rs34,000 to Rs50,000 a month, depending on the option availed.

RM has been a non-starter in India for several reasons. First, unlike in the XS, the
government does not bear the insurance risk or the property fluctuation risk. Consequently,
there was a steep haircut on the value of the product and an inconsequential monthly payment
to the senior citizen.

There is also the issue of whether the government will gouge tax from seniors on the monthly
income, even though the home asset is usually built out of post-tax savings. However, this
issue is with the Central Board of Direct Taxes (CBDT) and should hopefully see a decision
in favour of the country's elderly population.

Interestingly, while the capital value of a home is converted into an annuity over the
homeowner's lifetime, the RM product ensures that the monthly income steadily rises as the
senior citizen gets older. That is because the haircut on the property value is lower when the
senior citizen is older, because life expectancy decreases.

According to Mr aishankar who authored this project, the benefits are going to be
revolutionary.

The benefits will be as follows:

y Life-time payments till demise of surviving borrower.

y No repayments till borrower lives and occupies the house.
y Single collateral; borrower liability not to exceed house value.
y Loan settlement through sale of house.
y Heirs may repay through sale of house.

Ergo, RM is beneficial for senior citizens who want a regular income to meet their everyday
needs, without leaving their houses.

V

 V 

V

All Reverse Mortgage Company® is wholly owned by United Southwest Mortgage

Corporation Inc., and works only with borrowers age 62 and older to fulfill their reverse
mortgage needs.
=e are an approved correspondent lender with the Department of Housing and Urban
Development (HUD), which allows us to offer the FHA Reverse Mortgage Program.

=e are proud members of the National Reverse Mortgage Lenders Association and strictly
adhere to its Code of Conduct.

=e maintain A+ Exemplary rating by the BBB.

Our goal is to not only meet, but to exceed your expectations. It is our desire to help find
you the best program to meet your needs, often helping you realize thousands of dollars
more in loan proceeds as well.

NE= For the month of August 2010 we now offering an exciting promotion which credits
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c
   
   

The major reverse mortgage lenders in India or the banks and financial institutions providing reverse
mortgage in India include:

A „ational Housing Bank („HB)

A  ewan Housing Finance Limited ( HFL)
A Êtate Bank of India (ÊBI)
A (unjab „ational Bank ((„B)
A Indian Bank
A Rentral Bank of India

Reverse mortgage is a way of getting the benefits of your home equity by retaining the home ownership
and also without having to make any repayments. The senior citizens in India will definitely find reverse
mortgage a solution for their financial needs after retirement and help them in regaining their feeling of
independence.
http://www.indiahousing.com/reverse-mortgage-india.html

The „        „was established on 9th July 1988 the „ational Housing Bank Act,
1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial
and other support to such institutions.

The „     empowers „ational Housing Bank or „HB to:

u  irect and regulate the functioning of housing finance institutions for fair practices
u (rovide loans, advances or any other financial assistance to Banks and housing finance
institutions for slum improvement
u Êupervise mobilization of resources and extension of credit for housing
„HB has the main objective of promoting a network of highly efficient and dedicated housing finance
institutions to cater to the finance needs from various regions and income groups. In order to upgrade
the housing stock in the country, „ational Housing Bank undertakes augmentation of supply of buildable
land and building materials.

Besides raising resources for the housing sector, „HB also provides refinance to major housing finance
institutions. All the       registered with the „ational Housing Bank are eligible
for refinance support from „HB if they have net owned funds of minimum Rs. 10.0 crores. „ational
Housing Bank has contributions in equity capital of five Housing Finance Rompanies (HFR).

Along with the HFR s, „ational Housing Bank also engages in direct lending to state housing boards and
development authorities. It also provides financial assistance to people affected by natural calamities
like earthquake, flood, cyclones etc.

The main businesses and finance products of NHB include:

u c

c
 by issuing bonds or debentures, borrowing from reserve
bank of India and other financial institutions
u NHB launched "Ê    
c 

 
Ê
 " to make
housing loans accessible for housing development works in rural India on
the golden jubilee of India's Independence
u |  
Ê



 and development of secondary mortgage
market in India
u |   
   scheme for protection of lenders against any
default.
u Providing c
 
 to Housing Finance Institutions
u National Housing Bank also engages in ( 

 
 for large-scale
housing projects
u The finance products by NHB include ‘ 
Ê and c 
|   loans along with the above listed services

For other info regarding the news, tender notices and recruitment and careers at
National Housing Bank, refer to their official website. The site also gives you
online submission of returns facility. ‘!"Ê

 

 

National Housing Bank
Core 5 - A
India Habitat Center
Lodhi Road
New Delhi - 110003
#

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ë 

ù Section 50C of the Income-tax Act, 1961 contains a special provision for adopting Stamp
Duty value of a property transaction to be adopted for the purposes of computing capital
gains of an assessee. Thus, in terms of the said Section 50C of the Income-tax Act, 1961,
which was inserted for the first time by the Finance Act, 2002, while computing the capital
gains of a person on selling immovable property, the sale consideration as declared by the
tax payer will be replaced by the ͞circle rate͟ of the property and accordingly, the capital
gains would be computed.

ù For the first time, this provision came into effect on and from the financial year 2002-2003.
It is provided in this section that the sale consideration received or accruing as a result of
transfer of any capital asset by the assessee being land or building or both, if happens to be
less than the value adopted or assessed by any authority of the state government for the
purpose of payment of stamp duty in respect of sale or transfer of the property, in that
situation the value so adopted or assessed by the Stamp Duty Authority shall be treated as
the sale consideration of the property received or receivable as a result of the transfer of the
property.

ù The above would be the situation, especially when the sale price as mentioned in the Sale
Deed is lower than the value of the property as adopted by the Stamp Valuation Authority
for the purposes of stamp duty on the said property.

ù For example, if one Anurag Lohia sells a property for Rs 55 lakhs and during registry of the
Sale Document at the office of the sub-registrar he finds the valuation of the property as per
sub-registrar to be Rs 65 lakhs, the stamp duty would be payable on Rs 65 lakhs even though
Anurag received a payment of Rs 55 lakhs only. Anurag may not be bothered about the
payment of stamp duty because in any case the same is payable by the buyer. But now in
view of the provisions mentioned in Section 50C of the Income-tax Act, 1961, Anurag will be
liable to payment of capital gains by treating the sale price as Rs 65 lakhs, which is the circle
value or the Stamp Duty Authority value of the said property. Hence, while computation is
being made by Anurag to arrive at the capital gain amount, he will have to take into
consideration the sale price of the property at Rs 65 lakhs being the value adopted by the
Stamp Duty Authority for the purposes of charging stamp duty on such sale transaction.

ù Thus it is very clear that in view of insertion of Section 50C in the Income-tax Act, 1961 all
those tax payers who derive capital gains on selling any immovable property, while
calculating the quantum of capital gains through the sale will compute on the Stamp Duty
Value of the transaction, especially in a situation where the Stamp Duty Value is higher than
the sale price shown in the Sale Deed.

ù The above provision will be applicable to all categories of taxpayers deriving income from
capital gains. However, this law will not be applicable to persons deriving business income
by selling immovable property. The intention of the government by inserting Section 50C in
the Income-tax Act is specifically to provide for a special provision for taxing full value of
consideration where the consideration is received or accruing as a result of transfer by an
assessee of a capital asset, being land or building or both, in case it is less than the value
adopted or assessed by any authority of a state government for the purpose of payment of
stamp duty in respect of such transfer.
ù The impact of this provision in plain and simple words would be that the value so adopted or
assessed by the Stamp Duty Authority would be deemed to be the full value of the
consideration received or accruing to the assessee as a result of the transfer of the
immovable property.

ù Section 50(C)(2) of the Income-tax Act, 1961 further provides that where the assessee claims
before the assessing officer that the value adopted or assessed by the Stamp Valuation
Authority exceeds the fair market value of the property as on the date of transfer, then in
such a situation the assessing officer may refer the valuation of the capital asset to the
valuation officer.

ù A very important amendment has been made to Section 50C by the Finance (No. 2) Act,
2009. Now, the new amendment provides for substituting the sale consideration by the
value as adopted by the Stamp Valuation Authority in respect of sale of immovable property
transaction even in a situation where the property is not registered in the office of the sub-
registrar. Section 50C as amended by the Finance (No. 2) Act, 2009 has substituted the word
͞assessed͟ in this section by the word ͞assessed or assessable͟.

ù The plain and simple impact of addition of the word ͞assessable͟ in this section is that the
provisions of Section 50C would become applicable even in respect of transactions like the
property transaction under power of attorney, which are not required to be registered with
the sub-registrar. As a result of the amendment, the capital gain even in respect of this type
of transaction would be as per the value adopted by the Stamp Valuation Authority,
especially when the sale consideration as appearing in the power of attorney transaction is
lower than the value which might be assessable in respect of such transaction as per the
value adopted by the said Stamp Valuation Authority.

ù Thus, the impact of new amendment is that due to the insertion of the word ͞assessable͟
even the transaction of real estate sale, which otherwise may not be registered in the office
of the sub-registrar but still for the purposes of computing the capital gain on such
transaction the assessable value of the property with the Stamp Duty Valuation Authority
will have to be adopted as the sale price of the property.

ù All those tax payers who may be coming within the ambit of Section 50C of the Income-tax
Act, 1961 should carefully plan payment of their advance tax for the year. Please do
remember that even when actual payment has not been received but due to the deeming
provisions contained in Section 50C of the Income-tax Act, 1961 in a situation where the
Stamp Duty Valuation is adopted as the sale consideration for the property which you have
sold, then please compute your capital gains and the capital gain tax liability taking into
consideration the figure of Stamp Duty Valuation as against the actual sale consideration,
specifically in such a situation where the sale consideration is lower than the stamp duty
value as fixed by the government.