Background:
India is one among those countries that is seeing an exponential growth of elderly people. Better medical facilities, care, increased longevity, less fertility rates make elderly population fastest growing segment in India. From the figure of around 101 Mn in 2011, population of elderly people (60 plus) is likely to touch more than 300 Mn by 2050. Less than 10 per cent of senior citizens retire from organised pension paying jobs; there is no substantial special security in the country as well for elderly people. Thus, majority of the elderly people have to depend on savings and interest earned thereon for remaining period of their lives after retirement that may run for more than 15 to 20 years.
Scheme of Reverse Mortgage:
In the above scenario, a scheme like Reverse Mortgage can come handy to meet their monthly needs. In this scheme, a senior citizen (age 60 plus) can mortgage his / her unencumbered residential property to a lender (bank) and a get a specific amount from the lender for a specific period of time (max 20 years). Amount to be received from the bank depends on value of property, age of borrower and prevalent interest rate. Further, the borrower is under no obligation to repay the loan during his / her life time if he / she chooses to continue to stay at the house. After death of the borrower, his / her spouse (co-borrower) can continue to stay till his / her death. After demise of both the co-borrowers, loan could be adjusted after selling the house.
Legal heirs have following three options:
a. They can repay the loan and take back the house, or
b. Sell the house, repay loan and keep remaining amount, or
c. Prefer to foreclose the loan meaning thereby to give right to sell the property to the bank; they will not be financially liable for any liability in case sale proceeds of the house are less than bank loan.
Analysis:
Reverse Mortgage is beneficial to the borrowing elderly from several angles:
1. It supplements their monthly income and helps them to lead a dignified life.
2. They need not depend on their children or others for monthly sustenance.
3. Title to the property remains with borrower.
4. It is very useful for those who are house rich but cash poor. This means that such elderly persons who are staying in a big house they do not require but are in need of money, can get that cash under the scheme.
5. The senior citizen can continue to stay at the house even after the term is over till his / her death and also death of the spouse. Monthly payment by the lender will, however, stop after period of the loan.
6. The loan is without recourse to borrower meaning thereby elderly person will not be called upon to pay back after the maturity period.
7. It is beneficial for children as well as they can repay the loan and keep the house if they so want or sell the property to settle the loan and not being financially liable for anything.
Enacted in 2007, it has, however, not become popular with either of the two stakeholders. Our study shows that even among urban educated senior citizens, very few people are aware of the scheme details like computation of loan amount, costing and taxation impacts. Knowledge of the scheme even at branches of the banks is sketchy. Social stigma of mortgaging one’s own house for living is another issue that is coming in the way of its growth. And finally, prevalent culture and social mindset of leaving property to children is contributing negatively.
Conclusion:
In a country like India where pension and other forms of social security / health benefits are not easily available to larger section of retirees, there is no reason why Reverse Mortgage should not be considered as an option. The concern of children is also unfounded. In case children are taking care of their parents, there is anyway no need for entering into such transaction. Reverse Mortgage is a scientific, objective and rational way of getting an income out of self-acquired property and it should be encouraged. Need of the hour is to make elderly people aware of the scheme. Communities and associations of senior citizens have a role in this regard. Banks have also to play a big role by marketing the scheme to elderly people.
Dr A K Sen Gupta is Co-Founder and Chief Trustee of My Retired Life Foundation (MRLF). He may be contacted at aksengupta51@gmail.com or 9821128103.
