The National Housing Bank (NHB) on Thursday came out with draft guidelines for introduction of reverse mortgage of homes following finance minister P. Chidambaram’s announcement in this year’s budget.
The draft guidelines have been put in the public domain to invite comments and suggestions.
The NHB is the apex body whose final guidelines have to be followed by all banks and housing finance companies.
The scheme, popular in the US, allows senior citizens to mortgage their residential properties (house or flat) to a bank or a housing finance company (HFC). It retains their right to stay there and the money they get in return ensures a steady income. They can opt for monthly, quarterly or annual payments, or even a one-time payment, depending on their needs.
According to the proposed guidelines, the money an owner receives by mortgaging his house will go up with its revaluation, which has to be carried out by banks/HFCs. The property will have to be valued frequently, at least every five years, to make sure the payment — be it periodic or a lumpsum amount — reflects the possible increases in value.
House owners over 60 years of age can seek a loan of up to 60 per cent of the value of the residential property. This needn’t be repaid..
The NHB’s draft guidelines further state that citizens between 60 and 70 years can obtain loans up to 45 per cent of the value of the property. It can be up to 50 per cent for the 71-75 age group, up to 55 per cent for 76-80 and up to 60 per cent for those above 80.
The size of the loan would depend on the property’s market value, to be determined by an approved valuer.
The bank/HFC concerned will recover the loan along with interest on death of the owner or expiry of the mortgage period by selling the house. Any excess amount will be given to the owner or his heirs.
The owner will also have the right to repay the loan to end the mortgage.
According to the proposed guidelines, married senior citizens can avail themselves of the scheme as joint borrowers, provided they are using the property as their permanent residence. Banks/HFCs may rely on documentary evidence and physical inspections to check if this criterion is being met.
The funds obtained under the scheme can be used for specified purposes, the proposed guidelines say. They include maintenance of the house, medical and emergency expenditure for family, supplementing pension or any other income, repayment of an existing loan taken for the residential property to be mortgaged and meeting other genuine needs.
The owner would also have the option of moving out of the residence to an old-age home or to live with relatives after he has settled the loan by selling the property.
The guidelines also make it mandatory to possess a title indicating ownership of the property. The property should be free from any encumbrances.
The reverse mortgage guidelines are likely to be finalised and put into effect by May.
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