WHY REVERSE MORTGAGE SCHEME IS NOT SO POPULAR IN INDIA

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WHY REVERSE MORTGAGE SCHEME IS NOT SO POPULAR IN
INDIA
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Reverse Mortgage Scheme has been in presence for
8-9 years. In western countries this product runs
with huge success and is a preferred option for
retirees. But in India the same reverse mortgage
product is yet to take off. Not many are opting
for it even though the goodies were rolled out in
the second phase. There are reasons for it but
first we need to understand the product itself.
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What is Reverse Mortgage?
In simple words, under a reverse mortgage scheme
any individual can mortgage his/her residential
house to any financial institution which in turn
pays a fixed installment at a defined rate of
interest. The first phase of this scheme was
Reverse Mortgage Loan where payouts are generally
for 5-20 years. On completion of the term or
early death the borrower or the legal heir can
claim the house by repaying the loan.
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Since the fixed term payout was not a very
lucrative option and there were too many
restrictions it did not go well with the
retirees. Then few institutions tied up with life
insurance companies and came out with a lifetime
annuity in this scheme for the amount of loan
availed. Even then the acceptance was slow since
annuity was taxable. To make it more appealing,
the annuity under reverse mortgage was later made
tax free. So, today a borrower can receive a
lifetime annuity which is even payable to the
spouse on the death of the first annuitant.
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Why No Acceptance?
In India investing in real estate is a highly
emotional decision. When a family lives in a
house for 20-25 years then its difficult to see
the ownership going out of hands to any financial
institution. The decision is more difficult when
one has built the asset through loan. Thus, the
house one buys in his lifetime is actually
perceived to be an asset for next generation.
Considering that here still children take care of
their parents in their old age no parents wish to
take on any liability on the house and pass it on
to the children. All these reasons attribute to
the slow acceptance of Reverse Mortgage Scheme in
India.
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If we consider the tax-free lifetime annuity,
Reverse Mortgage is a good scheme to rely upon
when the financial constraint is too much and
there is no recourse. With this option, the risk
of living longer is also taken care of and with
better payouts. The house ownership can always be
claimed back by paying the loan availed. If
institution sells the house then cash surplus, if
any, is paid back to legal heirs. In a nutshell,
the scheme in its present form does provide a
good option for retirees to plan their
post-retirement income.
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Source http//mortgage-loans-login2loans.blogspot
.in/2015/11/why-reverse-mortgage-scheme-is-not-so.
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