Page 51 - BANKING FINANCE February 2024

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After every five years, the property is revalued by the bank Yet another reason is that most banks offer a maximum of
to reflect any change in its worth. If the house value has Rs. 1 crore loan for reverse mortgages. State Bank of India
increased, the loan amount is usually readjusted upwards. offers up to Rs. 2 crore for properties located in metros and
If the value has one down due to some reason such as wear Rs. 1.5 crore in other places. However, big homes in metros
and tear, it can also be adjusted downwards. could typically exceed that value. Financial experts say that,
in such cases, it makes sense to sell the property and move
The loan amount is typically paid over 15 years but some into a smaller apartment and utilize the balance amount
banks have the option of spreading it over 20 years. The for their needs after purchasing a new house.
monthly income will stop after the loan tenure is over but
there is no need for the borrower to repay this loan in their Banks have their own reasons for not promoting reverse
lifetime. Also, only when the couple die, can the banks mortgage loans, despite this getting them almost 2% more
auction the property and recover the loan. Any remaining interest than housing loans.
amount from the sale proceeds is passed on the legal heirs.
The banks will give legal heirs of the deceased the option to First is the hassle involved in selling the house to recover
pay off the loan and take possession of the house before the dues. They have to spend on issuing notices to legal heirs
putting it for auction. Note that the monthly payment by before taking possession. There could also be legal trouble
if the deceased couple will the house to people other than
the bank (principal and interest) is not subject to income
the legal heirs named in the bank loan documents.
tax.
Banks are also wary that it would be difficult to find buyers
Why is it not popular? for the property even if all other issues are resolve. This is
A few factors make reverse mortgages not so attractive for true in cases where the property is old. Most banks don't
both senior citizens and the banks. A few public sector bank offer housing loans if the property is more than 25 years old.
branches to find out the reasons. Another concern is the longevity of borrowers. In such cases,
the building can become decrepit and it will be difficult to
One has to do with Indian traditions. Unlike in the Western auction it off. Thus, banks could run the risk of not being
world, most people in India prefer to pass on their assets, a able to recover their dues.
sort of legacy, to the next generation.
Is there a solution?
Another reason is that most banks don't offer reverse Reverse mortgages work for a subset of senior citizens -
mortgages on properties that are more than 40 years old. those without any dependents or those whose children are
This is because most ancestral properties may not be eligible financially independent and who do not need to inherit
for reverse mortgages. property. The property should not be older than 40 years
and the value of the house should not be significantly more
The third reason is a clause in the loan agreement that than Rs. 1 crore (Rs. 2 core if it is located a metro).
demands the borrowers to reside in the mortgages house.
If they don't stay there for more than 12 months, banks can Retirees who want to opt for the scheme should take
take possession of the property. This creates a physiological into account how much money they will receive and
barrier for may senior citizens who may want to stay with future expenses they are expected to incur and
their children when any unforeseen situation arises. accordingly plan their finances. Senior citizens should also
remember that while the monthly payments are fixed
The banks also require the borrower to mandatorily take till the property valuation happens, which is done once in
insurance for both the property and life of the mortgagers, fire years, their expenses are bound to be higher due to
the proceeds of which can be used for the loan repayment. inflation. Financial experts say it is better to consult an
However such premiums in this case, considering the age investment adviser before taking any decision of reverse
of the insured, is typically cost-prohibitive. mortgage. (Refer to Mint)

46 | 2024 | FEBRUARY | BANKING FINANCE