Mr & Mrs Acharya (name changed), our clients, aged 65 and 62 respectively, live alone in their own house (free of any encumbrances) in Bengaluru while their children live in the USA. Having been a private sector employee, he does not have any pension scheme to support their daily needs. Further, they do not have a structured insurance cover.
They don’t want to be dependent on their children financially. With the ever-rising cost of living and cost of medical services, they are concerned about the maintainability of their standards of living. We were able to help them find their answer in Reverse Mortgage with a public sector bank.
In simple terms, Reverse mortgage is money lent by a bank to the senior homeowner (be it monthly, quarterly or lump sum), against his property which is not repayable by him until the disposal of the property or his death.
During the term, the homeowner is not under any obligation for payment of principal or interest. The property that was built using hard earned money in their earlier days now supports the seniors during the time of their need.
This provides great relief to the senior homeowner as it helps with adequate cash flows to manage his or her medical expenses and also probably plan to move into an independent or assisted living community (the concept which is gaining popularity now in India) where they can lead a hassle-free life.
This scheme was introduced by the Government of India in 2007 to address such issues faced by the ever-increasing senior population (aged 60 and above) and to give them a life of dignity. The banks have guidelines basis which the value of loan or loan tenure is determined, with market interest rates. The scheme is tax-friendly wherein funds received by the seniors are not income in their hands and are treated as loans thus exempt from taxation until the sale or disposal of the property.
Though it is a well-established concept in some of the developed countries, Reverse mortgage has not gained as much popularity in India as one would have imagined because of low awareness, complicated processes and hence low adoption. Many seniors are not aware of the existence of such an option. As a financial tool, Reverse Mortgage is ideal to augment a senior citizen's income and thus, lead to a quality life.