Reverse mortgage products receive modest response
The innovative reverse mortgage product, announced by finance minister P Chidambaram in the Budget for 2007-08, has received a modest response from the targeted borrowers.
By Priti Patnaik, TNN |
The innovative reverse mortgage product, announced by finance minister P Chidambaram in the Budget for 2007-08, has received a modest response from the targeted borrowers. This is because of ambiguity in tax issues, and even cultural taboos. But since there is a significant aging population who could potentially benefit from this scheme, banks are hopeful that the scheme will get popular in due course.
Chidambaram had stated that National Housing Bank (NHB) will introduce a reverse mortgage scheme for senior citizens. After the reverse mortgage guidelines introduced by NHB, several banks and Deewan Housing Finance have launched the scheme for senior citizens. The banks that have launched the scheme are Punjab National Bank, State Bank of India, Bank of Baroda, Allahabad Bank, Indian Bank and private lender Axis Bank.
Under this scheme, the property is pledged with a bank, which pays a monthly installment to the person for a fixed period of time. At the end of these payments, the property belongs to the lender. Housing regulator NHB has written to Central Board of Direct Taxes, asking that the loan given to the senior citizen should be exempted from Income-Tax.
Chidambaram had stated that National Housing Bank (NHB) will introduce a reverse mortgage scheme for senior citizens. After the reverse mortgage guidelines introduced by NHB, several banks and Deewan Housing Finance have launched the scheme for senior citizens. The banks that have launched the scheme are Punjab National Bank, State Bank of India, Bank of Baroda, Allahabad Bank, Indian Bank and private lender Axis Bank.
Under this scheme, the property is pledged with a bank, which pays a monthly installment to the person for a fixed period of time. At the end of these payments, the property belongs to the lender. Housing regulator NHB has written to Central Board of Direct Taxes, asking that the loan given to the senior citizen should be exempted from Income-Tax.
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Officials say that this is a demand driven product and is not seller driven. It is available for anyone who wishes to opt for this product. The quality of the underlying security backing a mortgage is important, they said. Going forward, the product can also given rise to trading in mortgage-backed securities.
Banks also need clarity on the provisioning they require to make for such loans.
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