When the Reverse Mortgage Scheme was introduced in 2008-09, it was expected to be widely accepted and beneficial to senior citizens. However, in its 5 year history, there have been few takers, and only Rs. 800 crores worth Reverse Mortgage Loans have been disbursed of the estimated market size of Rs. 20,000 crores. To sweeten the scheme and attract more senior citizens, the Government has recently brought about some important changes to the scheme, the most important being making annuity payments tax free.
So what is the Reverse Mortgage Scheme? For the uninitiated, let’s give a quick background. Budget 2007-08 saw an introduction of a scheme, wherein senior citizens (above the age of 60) could unlock the value of their property and earn a regular income, while continuing to remain owners and staying in the property. This means a senior citizen who owns a property and is in need of regular cash flows can mortgage his property with a bank or housing finance company. The bank will value the property and set the interest and tenure of the loan.
The senior citizen then gets a certain proportion of the house value as a loan. Part of the amount is paid as lump-sum and the remaining amount is regularly paid as annuities as per the frequency opted i.e. monthly, quarterly etc.
The Reverse Mortgage Scheme has had few takers in its 5 year history. The Government recently announced some changes to the scheme to increase its popularity. These include making the annuities received by the senior citizens tax exempt, increasing the period of annuities receivable to the lifetime of the borrower and a possible increase in the amount of annuity received.