Reverse mortgage is an idea which took a long time coming into India but is still unable to catch the imagination of elders for whom it is primarily meant. It is a widely used rain check for the elderly in the United States. The concept is simple but ruthless.
An elderly person having his own immovable property but not having a regular liquid income to take care of his day-to-day needs as well as emergency expenses simply mortgages his property for a hefty one-time payment or series of payments at specified intervals without the obligation to service the loan. The mortgage company bides its time till the elderly person dies and recovers the loan plus accumulated interest from the legal heirs failing which it disposes of the mortgage property and recovers its dues till date. India has its own tweaked version.
Naturally, the mortgage company would be mighty careful in appraising the value of the property and would keep sufficient margin, just in case----the eligibility in India is 45 percent of the value for those in the age group 60 to 70, 50 percent for those in the age group 71 to 75, 55 percent for those in the age group 76-80 and 60 percent for those above 80. The reason why it has not probably caught the fancy of Indian elders is the cultural differences and filial practices.
An American youngster leaves the comfort of his parental home on attaining 18 years of age and learns to stand on his feet so much so that when he decides to get married, he sends out an invite to his parents from among a select band of friends, relatives and colleagues!! You reap as you sow goes the cliché. When the parents need help, the youngster naturally turns his back on them who in turn rush to reverse mortgage, leaving the youngster to redeem the parental debts if at all he wants their property. Indians, on the other hand, still have a strong family affinity and harbor deep love for their wards at the end of the day.
Our elders have not taken the tax bait either. The income tax law spares the senior citizen from capital gains tax liability as well as from tax liability on income from other sources. The only scenario in which he may have to contend with tax liability is when he settles for an annuity from an insurance company by handing over the lump sum received from a mortgage company. Legal heirs would have to pay capital gains tax way when they sell the property in which case the loan redeemed by them would also be added to the cost.
Introduced in India by Budget 2007-8 with National Housing Bank (NHB) being assigned the role of the pivot, the concept has been tweaked with the maximum duration of the loan being 15 years or death of the borrower, whichever is earlier. Suppose a person applies for reverse mortgage benefit as soon as he qualifies, i.e. on attainment of the age of 60, he can live in peace for the next 15 years because after 15 years when the loan has to be repaid, the senior citizen would have a torrid time. While longevity has given a longer term of lease on the terra firma, it hasn’t given the matching resources to him. How will he repay when odds are stacked against him except by selling the property or by making a fervent plea for help from children?
One wonders why the NHB has been niggardly in this regard. While it is one thing to review property every five years so to adjust the loan in the light of the most recent valuation, it is quite another to demand repayment from a person sapped of energy and resources. It is perhaps this along with the surging affection for one's towards that has not endeared our elders to the idea of a reverse mortgage. The result is in 2013 the total amount disbursed by way of reverse mortgage loans was a piffling Rs 1,800 crore. It hasn’t, for all one knows, gathered momentum thereafter either.
(The author is a senior columnist and tweets @smurlidharan)
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Updated Date: Jan 14, 2019 18:53:55 IST