Whenever one speaks or thinks about post-retirement life, the typical problems that come to our mind are proper financial support and lack of regular income for taking care of healthcare, cost of living and other amenities. Most of the senior citizens have a property in their names; however the same cannot be converted into instant and regular income stream due to its inherent illiquid nature. All these problems can be taken care by a concept known as ‘Reverse Mortgage’; introduced by Central Government in the 2007-08 Union Budget.
In simple terms, reverse mortgage is the exact opposite of regular mortgage loans. In regular mortgage, the individual pays equated monthly installments (EMI) to the financial institution forbuying a property; however in reverse mortgage the senior citizen who owns a house or property,but lacks a regular source of income, can mortgage his property with the financial institution and the financial institution pays the individual a regular amount. The financial institution has the right to sell the property post thedeath of the customer and the excess amount is remitted back to the legal heirs.
According to industry sources, 20 percent of the Indian population is likely to be elderly by 2050. This means that the Government as well as private sector needs to devise certain strategies for providing social security and healthcare benefits to the rapidly increasing senior citizen population. This also underlines immense opportunity for financial institutions for promoting reverse mortgage in India.
Why Reverse Mortgage?
One of the prime benefits is the mental peace and social security that reverse mortgage offers to the senior citizens. The thought of being financially independent, not running short of funds in case of medical emergencies and not being a burden on their children accords a lot of mental peace and a restored sense of dignity to the elderly. Further, the senior citizens need not move out of their owned house which protects them from rental accommodation worries and fluctuating real estate market. The customer is not required to service the loan during his lifetime and there are no end-use restrictions for the funds.