10 July, 2023.
The celebration of my parents’ 50th anniversary gave me a wonderful opportunity to meet many of my uncles, aunts and cousins. During the family get-together, I realized that a lot of my elderly relatives were concerned about their financial security in their silver years. They were grappling with their mounting medical expenses and wondering how their fixed pension income is going to help them maintain their current lifestyle. That is when one of my cousins recommended the option of reverse mortgage wherein senior citizens can receive regular installments from the bank, which they can use to pay their debts, cover their medical expenses, and establish an emergency fund. This piqued my interest in understanding the concept of Reverse Mortgage.
So, what is a reverse mortgage? Reverse Mortgage is an innovative financial product that allows senior citizens to borrow money from banks against their home while still living in the home. Through reverse mortgage, homeowners receive funds from banks. The loan need not be repaid as long as the owner lives in the home. If the owner sells the house or passes away, the loan is repaid using the property sale proceeds. The remaining profits / assets from the sale proceeds would belong to the owner or the heirs.
The banks that offer reverse mortgage loans to senior citizens in India include SBI, PNB, Central Bank of India and others. National Housing Bank (NHB) regulates the reverse mortgage market in India. To be eligible for reverse mortgage, the owner should be atleast 60 years old. The residential property should be the primary residence of the owner. Typically, the loan amount will range from 60% to 90% of the value of the property and the duration of reverse mortgage loan ranges usually from 15-25 years. The owner retains the title of ownership and is responsible for its repair and maintenance, payment of house tax and other property related expenses.
The key advantage of the reverse mortgage is that it ensures financial freedom to senior citizens. They need not worry about shortage of funds in case of any emergency. Furthermore, they need not move out of their own home and hence are free from hassles of rental accommodation. Lastly, they are not required to service the loan during their lifetime. Overall, the reverse mortgage facility provides greater financial well-being while maintaining dignity to senior citizens.
Despite its advantages, the reverse mortgage market has not taken off well in India. Many social and cultural barriers are preventing the adoption of reverse mortgages in the country. In Indian society, parents leave their property as an inheritance / asset to the future generation. This discourages ageing Indian parents from availing reverse mortgage facilities. Secondly, the societal norm is that children will take care of their ageing parents’ financial and medical needs and availing reverse mortgage can be perceived as a selfish motive wherein children are shirking off their responsibility and causing old parents to fend for themselves. Finally, people have an emotional attachment to their homes. So, they find it difficult to lose or encumber their home. Apart from cultural and social barriers, there are other challenges that have hindered the adoption of reverse mortgage schemes in India. For instance, limited awareness of reverse mortgage and its benefits has led to its limited adoption. Also, complex regulatory environments and ambiguities related to ownership issues have hindered lenders from offering reverse mortgage schemes to customers.
A multifaceted approach is required to address the above challenges. Targeted messaging to address social and cultural barriers, raising public awareness regarding reverse mortgages, efficient judicial system to deal with property title issues are some of the steps that can be taken to give momentum to the growth of the reverse mortgage market in India.
According to NSO’s report published in 2021, India’s elderly population (age 60 and above) is expected to increase by 41 percent to 138 million by the year 2031. As India’s population continues to age, there will be an increased demand for financial solutions to support the needs of senior citizens. Reverse mortgages seem to be a viable financial solution for senior citizens. It is important for senior citizens to be aware of this opportunity, explore it and take an informed, pragmatic decision that ensures their financial well being in the twilight years of their life.