N. Ravi Kumar

CHENNAI: For senior citizens living in self-acquired and self-occupied house/apartment, the reverse mortgage scheme, announced in the 2007-08 Budget and introduced over the subsequent months by a few banks, is a source of additional income.

Under the scheme, senior citizens above the age of 60 may avail themselves of loan from select banks against their properties. At least five banks, including the State Bank of India and Bank of Baroda and a non-banking finance company, are offering the scheme.

After arriving at the value of the property, the financial institutions inform the owners about the available loan amount. This could be as much as 90 per cent of the valuation, said a senior official of State Bank of India. But what banks look for is a residual life of at least 20 years in the building.

As regards the mortgage loan, the borrowers have the option of either opting for a lumpsum or a monthly payment. The interest rates, the tenure of payments, and the stipulated entry age of spouse, who could be co-opted as a joint borrower, differ from one financial institution to another. Under the scheme, the spouse would continue to receive the periodic payment even after the borrower’s demise. The financial institutions would do a re-valuation of the property every five years.

In his 2007-08 Budget speech, Union Finance Minister P. Chidambaram said that under the ‘reverse mortgage’ scheme, a senior citizen, who was the owner of a house, could avail himself/herself of a monthly income against the mortgage of his/her house, while remaining the owner and occupying the house throughout his/her lifetime, without repayment or servicing of the loan.

Senior citizen and former national president of the Institution of Valuers C.H.Gopinatha Rao said the scheme did not get desired response, perhaps for want of clarity on tax treatment. But with the Union Budget 2008-09 announcement, “the stream of revenue received by senior citizens would not be income,” it is expected to become popular. A member of a pensioners association, however, felt that it would take a while for the scheme to become popular as there is considerable emotional value attached to a house. Many senior citizens found it difficult to mortgage their house, unless forced by circumstances.