On the house: Elders can now own and earn

Senior citizens can now live off their homes, literally. Taking a cue from developed countries, the government has announced its sanction for reverse mortgage products in the country. In a reverse mortgage, senior citizens can avail of a loan against property owned by them without having to pay back monthly installments. 

The finance minister announced that the National Housing Bank (NHB) will shortly introduce a novel product for senior citizens: a reverse mortgage under which a house-owning senior citizen can avail of a monthly stream of income against the mortgage of his or her house. 

He or she can continue to remain the owner and occupy the house throughout his/her lifetime, without repayment or servicing of the loan. 

Reverse mortgage products are already available to citizens in countries like the US, the UK, Australia and Spain. In a normal mortgage, a customer will avail of a loan from a bank to buy a house and then repay it in monthly installments. 

In reverse mortgage, a senior citizen can pledge his/her house to a bank and get a lumpsum amount or monthly payments, based on the value of the property. They don't have to pay back any installments to the bank till they continue to stay in their house. The large Indian banks have welcomed the new development. Says V Vaidyanathan, retail banking head, ICICI Bank, "We like the concept and look forward to launching our products soon." 

Says an executive from HDFC, India's leading housing finance company, "This is a welcome development and we are awaiting NHB to announce further details of the product. We are certainly interested in launching our products in this space." 

In a typical deal, the bank or finance company will value the house using a standardised norm and arrive at a lumpsum or monthly equated amount payable over a specified period of time. In an earlier note prepared by NHB, a lending rate of 6% and a tenure of 20 years were used to arrive at amounts payable to senior citizens. 

At present, however, there is some ambiguity on how the income from mortgaging the house would be treated in the hands of senior citizens. There are no clear rules if such a payment would be taxed or not. 

Tax experts are, however, confident that since each payment creates additional loan, the payment on mortgaging property will not be taxed. 

Though the scheme has been announced formally in this year's budget, companies like Dewan Housing are already offering a reverse mortgage product called Saksham to senior citizens with an in-principle approval from NHB. 

The product is modelled as a regular income product for customers above 60 years of age who have been living in their house for at least one year. Says an HDFC official, "We wanted to be sure of the rules before we put out our products."