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 mortgages’ 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.