7/31/2019 Project Reverse Mortgage

1/17

Project PresentationOn

Reverse Mortgage in India

Presenter:Shaikh Azharoddin Shakeel.

Roll No.03

MMS-II 1

7/31/2019 Project Reverse Mortgage

2/17

Aim:

To Study the Concept ofReverse

Mortgage in India and finding the meritsand demerits behind the reverse mortgage

as a regular source of income to old agers

in India.

2

7/31/2019 Project Reverse Mortgage

3/17

Objectives:

The objectives of project entitled as can becategorized as follows:

To observe the return from RM , as a sourceof income to old agers.

The amount of risk involved in the REVERSEMORTGAGE With study of certain banks likePNB, LIC,UBI etc.

3

7/31/2019 Project Reverse Mortgage

4/17

Research Methodology:

The data that is used in this project is ofsecondary nature.

The data is to be collected from secondarysources such as various websites,journals, newspapers, books, etc.

4

7/31/2019 Project Reverse Mortgage

5/17

Reverse Mortgage in India:

In 2007, the finance minister of Indiaintroduced a concept well-known andwidely accepted in the West: Reverse

Mortgage.

A reverse mortgage (or lifetime mortgage)

is a loan available to senior citizens.Reverse mortgage, as its name suggests,is exactly opposite of a typical mortgage,

such as a home loan. 5

7/31/2019 Project Reverse Mortgage

6/17

How does it work?

In a typical mortgage, you borrow money in lumpsum right at the beginning and then pay it backover a period of time using Equated Monthly

Installments (EMIs).

In reverse mortgage, you pledge a property youalready own (with no existing loan outstandingagainst it). The bank, in turn, gives you a seriesof cash-flows for a fixed tenure. These can bethought of as reverse EMIs.

6

7/31/2019 Project Reverse Mortgage

7/17

Assured Life time payments till demise of surviving borrower. No repayments till borrower lives and occupies house.

Single Collateral; Borrower liability not to exceed value of house.

Loan settlement through sale of house. Heirs may repay without sale.

Banks to receive servicing fee. Option to create a RM Redemption

Reserve.

BORROWER

BANK / HFC

LIFE INSURANCECOMPANY

RML

Payment

Mortgage of

House

Annuity

Payment

Premium amountfor Annuity

Purchase

7

7/31/2019 Project Reverse Mortgage

8/17

key features:

1. Reverse Mortgage Loans (RMLs)

2. Eligible Borrowers.

3. Determination of Eligible Amount

of Loan.

4. Nature of Payment.

5. Eligible End use of funds.

6. Period of Loan.

7. Interest Rate.

8. Security.

9. Valuation of Residential Property.

10.Provision for Right to Rescission:

11.Loan Disbursement by Lender to

Borrower.

12.Closing.

13.Settlement of Loan .

14.Prepayment of Loan by

Borrower(s) .

15.Loan Covenants.

16.Title Indemnity/Insurance

17.Foreclosure.

8

7/31/2019 Project Reverse Mortgage

9/17

Indian Market : Threats

Old age population.

Joint families.

Complexity of ownership. Absence of competitive suppliers of RM.

Sources of Income Support for the Elderly

in India . India specific legal and taxation issues

9

7/31/2019 Project Reverse Mortgage

10/17

Indian Market : Opportunities

Potential Market Segments.

High House Equity.

Low Current Incomes Relative to DesiredStandard of Living .

Long Tenure at Current Home.

Lack of Other Supports. No Significant Bequeath Motive.

Independence and Quality of Life.10

7/31/2019 Project Reverse Mortgage

11/17

RM offerings in India:

SBI.

UBI.

DHFL.

LIC Corp.

11

7/31/2019 Project Reverse Mortgage

12/17

Eligible Borrowers Senior Citizens above 60 years and spouse over 55 yrsLending Institutions Scheduled Commercial Banks and Housing Finance Companies

Annuity Provider Life Insurance Companies

Borrower Interface Only with Banks / HFCsSecurity Mortgage of House Property in favour of Bank/HFCInterest Rate According to Market Conditions

Quantum of LoanBorrower Age 60 to 70 years 70 to 80 years 80 and above

Loan to Value 60% 70% 75%

Nature of Payment

Periodic - Monthly, Quarterly, Half-yearly or Annual

Lump sum or Line of Credit, subject to terms. Combination of above.

Lump Sum Upto 25% of Loan Amount, subject to terms of Lender.

Reverse Mortgage

Redemption Reserve

(RMRR)

Option for Bank/HFC to set aside up to 10% of loan amount as

RMRR to address property price adverse fluctuation risk. To be

adjusted with principal outstanding at time of loan redemption. 12

7/31/2019 Project Reverse Mortgage

13/17

Risks to RM Lenders:

Mortality Risks.

Interest Rate Risks.

Property Market Risk.

Moral Hazard Risk.

Liquidity Risks.

13

7/31/2019 Project Reverse Mortgage

14/17

Findings:

Reverse Mortgage arises as a regularsource of income for the old age peoples.

Terms and conditions are friendly with the

loan taker. Tax advantage in terms of reverse

mortgage.

With certain precautions it is becomingregular source of income for the old agersas well as for others whom there are lack

of regular income . 14

7/31/2019 Project Reverse Mortgage

15/17

Conclusions :

Offers an attractive option to the elderly tofinance their consumption needs on theirown.

RM, if widely available, might in factencourage more people in the workingpopulation to increase the proportion oftheir savings invested in housing.

15

7/31/2019 Project Reverse Mortgage

16/17

Suggestions:

Interest paid on reverse mortgage shouldbe explicitly allowed under income fromhouse property to give tax advantage tothe borrower.

Instead of merely capping loan amount as a

percentage of value, total outstandingincluding interest should be capped if theborrowers survive the term of loan. Theborrower must undertake to pay the

difference from his other sources. 16

7/31/2019 Project Reverse Mortgage

17/17

17