NHB bullish on reverse mortgage loans

Source :BS Reporter / Chennai/ Bangalore May 22, 2010, 0:56 IST

With its new reverse mortgage loan-enabled annuity scheme (RMLeA) offering senior citizens assured lifetime payments instead of the earlier cap of 20 years, National Housing Bank (NHB) is expecting more takers for the product. It is in talks with banks and insurance companies to expand its pool of RML facilitators.

In the first four-and-a-half months since its launch, RMLeA is learnt to have got 40 loan sanctions so far totaling an estimated Rs 100 crore. While the concept of RMLeA itself has been a slow starter in India, NHB feels the new offering is more attractive to borrowers in terms of higher payments and better risk mitigation.


“Annuity link provides comfort to participants. The original RML format has seen fairly good response. However, senior citizens were apprehensive about the scheme because of the cap on 20 years on payments. We should see a much bigger offtake in the coming days,” said RV Verma, executive director, NHB.

NHB, which is the principal agency to promote housing finance institutions, launched the scheme in India in 2007. Reverse mortgage seeks to monetise the owner’s equity in the house. This involves senior citizen borrowers mortgaging their house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. The borrower need not repay the principal and interest to the lender during their lifetime.

On the borrower’s death or on borrower leaving the house permanently, the loan along with accumulated interest is settled through sale of the house. The borrower’s heir can also repay or pre-pay the loan with interest and release the mortgage without sale of property.

An average individual in India invests nearly 30-40 per cent of his total lifetime income in constructing a house. Around 23 banks took up the RML scheme, which include State Bank of India, Punjab National Bank, Bank of India and Indian Bank. According to NHB, as of March 31, 2010, around 7,000 RMLs of Rs 1,400 crore have been sanctioned.

According to lenders, there were some limitations for the original scheme which includes the cap of 20 years on payments to senior citizens as well as low quantum of payments. Higher the interest rate, lower was the payment. To counter this, NHB came out with the annuity-linked plan, which assures lifetime payments even after the completion of the fixed term of 20 years and also promises nearly 1.5 times higher annuity as compared with the earlier one.

The RMLeA scheme has been launched by Central Bank of India in collaboration with Star Union Dai-ichi Life Insurance Co. Verma said talks were on to bring major banks and insurance players into the scheme.

He added NHB was seeking a tax exemption for annuities provided to senior citizens under its RMLeA scheme with the Central Board of Direct Taxes. To address the issue of lack of information for RMLeA in India, NHB has set up counselling centres in various cities like Delhi, Mumbai, Bangalore, Chennai and Hyderabad.