Despite reverse mortgages not taking off it India, banks recently improved the product by allowing homeowners to receive regular monthly payments until death. Prior to the change, there was a 20-year cap on payments from the time of entering into the arrangement with the lender.
According to the Financial Chronicle, the National Housing Bank (NHB) worked with Star Union Dai-chi Life Insurance Company (SUD Insurance) to provide the life-long annuity facility
“There were several representations on behalf of senior citizens that the 20-year cap on payment on annuities was unjust since the requirement of money is more when they grow older. The new scheme not only allows for annuity payment till death but also because it is an arrangement with an insurer the monthly payment would be higher than the earlier scheme,” said NHB chairman and managing director S Sridhar.
Borrowers are able to receive a higher payout because insurers are using mortality charts to determine the payout where as banks previously calculated the payment amount through discounting the property value at a specified rate said Sridhar.
“The customer will continue to deal only with the bank with which the deal has been entered with. However, there will be a back-to-back arrangement between the bank and the insurer under which the bank will pay premium to the insurance company,” said Sridhar.
While the changes make reverse mortgages more attractive, lenders told the Financial Chronicle they need to be marketed properly in order to be attractive to the Indian psyche that is generally not amenable to pledging ownership papers to banks.
“The product has not picked up during the past two years because generally Indians want to pass on their properties to their offspring and not give it back to the bank once they are old,” said H Rathnakara Hegde, executive director, Oriental Bank of Commerce.
Hegde said there has to be concerted effort to market the product so that senior citizens understand its utility. “Reverse mortgage could have a huge potential in India. However, one needs to explain its benefits to the people,” he said.