The Hindu Business Line : NHB may offer reverse mortgage for the elderly

EYEING NEW HORIZONS: Mr S. Sridhar, CMD, National Housing Bank, at the Banking Conclave 2006 organised by FICCI eastern region council in Kolkata on Thursday. - A. Roy Chowdhury

Kolkata , June 29

The housing finance space in India may soon play host to an altogether new instrument - reverse mortgage. A proposal mooted by National Housing Bank (NHB) has outlined reverse mortgage for senior citizens as part of its plan to develop the primary market.

Reverse mortgage, being seen as a way to meet the financial requirements of elderly house-owners, will help provide monetary benefits to them over a period of time at a rate that will be somewhat higher than what is prevailing in the market.

The facility will not come free - accumulated interest and principal will be in normal circumstances recovered after the death of the home owner through sale of the property concerned; the residual value, if any, will be handed over to the heirs.

The reserve mortgage product, to be offered by banks and housing finance companies, would be re-financed by NHB, explained Mr S. Sridhar, CMD, adding that the proposal would have to be cleared by the Reserve Bank of India.

"Our market survey has shown that many senior citizens will want such an option. A number of them face a situation where their children are not in a position to support them. In other cases, people are not willing to take help from their children", he said, while providing the rationale for the proposal. In some countries, reverse mortgage comes bundled with tax breaks, he added.

The idea, it is explained, is actually in line with one of NHB's broader objectives - provision of longer term housing finance to sections that need it most. Besides senior citizens, these include what are being billed as "unserved and under-served" communities.

The apex body hopes to channelise institutional credit for such segments, some of which may be found even in urban areas. Incidentally, investment requirements for India are huge: Rs 10 lakh crore, assuming 70 per cent of this will go into urban areas.

For the development of the primary market, NHB has also recommended mortgage guarantee and insurance - which, if developed, will be another first for the country. To be carried out by a separate institution, this will help in transfer of risk and expansion of the market.

NHB, Mr Sridhar ssid, was working on insurance-linked housing finance products. These will come in the shape of a combination of home loans and ULIPs (unit-linked insurance plans).

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