The concept of Reverse Mortgage Loans (RML) can be thought of as a product designed to assist the aged and senior citizens and as part of the social commitment of the financial institutions.

Reverse mortgage is a financial product that enables senior citizens (60 +) who own a house to mortgage their property with a lender and convert part of the home equity into tax-free income without having to sell the house.

Normally a borrower takes the loan in a lump sum pledging an asset. He then makes monthly payments to the lender, both principal and Interest; over a period of time (tenor of the loan), the borrower repays the loan with interest and gets back the pledged property.

In RML, the borrower pledges the house to the bank. Instead of a lump-sum, the bank pays him/her a fixed sum every month for a fixed period. (Normally 20 years or the demise of the borrower, whichever is earlier). They charge a regular interest.

The borrower does not need to do any loan servicing but he/she or their heirs canon the demise of the borrower, the bank sells the property pledged to it and recovers the money. This is a product promoted by NHB. Their guidelines are mostly followed by the member banks and NBFCs who are in home loan business.

Some of the major guidelines are

a.     The borrower should be a senior citizen of India.

b.     The borrower is allowed to continue to live in the house as long as he lives.   He is not allowed to let or sublet the property.

c.     On the demise of the borrower, the bank sells the house, adjusts the proceeds against the loan amount and pays the balance to the heirs. The bank takes the risks if the house fetches less amount than the outstanding loan amount.

d.     One time payment towards any emergency like health care, surgery or anything similar, a lump sum out of the mortgage value will also

be available to the consumer. 

e.     The banks are expected to reassess the value of property once in three years or so.

Please refer to http://nhb.org.in/RML/ for many more details. NHB provides full details and FAQs. They even provide a calculator to tell you how much one will get.

Benefits of a reverse mortgage:  

It aims at partially meeting the financial needs of senior citizens without selling the property and enables recurring funds inflows to the senior citizens during their life time. After the death of the senior citizen, the surviving spouse can continue to occupy the property till his/her demise.

For senior Citizens who have a house or a flat as an asset in their name but do not have sufficient monthly cash needed for comfortable living, Reverse Mortgage is very beneficial.