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7/31/2019 Project Reverse Mortgage
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Project PresentationOn
Reverse Mortgage in India
Presenter:Shaikh Azharoddin Shakeel.
Roll No.03
MMS-II 1
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Aim:
To Study the Concept ofReverse
Mortgage in India and finding the meritsand demerits behind the reverse mortgage
as a regular source of income to old agers
in India.
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Objectives:
The objectives of project entitled as can becategorized as follows:
To observe the return from RM , as a sourceof income to old agers.
The amount of risk involved in the REVERSEMORTGAGE With study of certain banks likePNB, LIC,UBI etc.
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Research Methodology:
The data that is used in this project is ofsecondary nature.
The data is to be collected from secondarysources such as various websites,journals, newspapers, books, etc.
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Reverse Mortgage in India:
In 2007, the finance minister of Indiaintroduced a concept well-known andwidely accepted in the West: Reverse
Mortgage.
A reverse mortgage (or lifetime mortgage)
is a loan available to senior citizens.Reverse mortgage, as its name suggests,is exactly opposite of a typical mortgage,
such as a home loan. 5
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How does it work?
In a typical mortgage, you borrow money in lumpsum right at the beginning and then pay it backover a period of time using Equated Monthly
Installments (EMIs).
In reverse mortgage, you pledge a property youalready own (with no existing loan outstandingagainst it). The bank, in turn, gives you a seriesof cash-flows for a fixed tenure. These can bethought of as reverse EMIs.
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Assured Life time payments till demise of surviving borrower. No repayments till borrower lives and occupies house.
Single Collateral; Borrower liability not to exceed value of house.
Loan settlement through sale of house. Heirs may repay without sale.
Banks to receive servicing fee. Option to create a RM Redemption
Reserve.
BORROWER
BANK / HFC
LIFE INSURANCECOMPANY
RML
Payment
Mortgage of
House
Annuity
Payment
Premium amountfor Annuity
Purchase
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key features:
1. Reverse Mortgage Loans (RMLs)
2. Eligible Borrowers.
3. Determination of Eligible Amount
of Loan.
4. Nature of Payment.
5. Eligible End use of funds.
6. Period of Loan.
7. Interest Rate.
8. Security.
9. Valuation of Residential Property.
10.Provision for Right to Rescission:
11.Loan Disbursement by Lender to
Borrower.
12.Closing.
13.Settlement of Loan .
14.Prepayment of Loan by
Borrower(s) .
15.Loan Covenants.
16.Title Indemnity/Insurance
17.Foreclosure.
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Indian Market : Threats
Old age population.
Joint families.
Complexity of ownership. Absence of competitive suppliers of RM.
Sources of Income Support for the Elderly
in India . India specific legal and taxation issues
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Indian Market : Opportunities
Potential Market Segments.
High House Equity.
Low Current Incomes Relative to DesiredStandard of Living .
Long Tenure at Current Home.
Lack of Other Supports. No Significant Bequeath Motive.
Independence and Quality of Life.10
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RM offerings in India:
SBI.
UBI.
DHFL.
LIC Corp.
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Eligible Borrowers Senior Citizens above 60 years and spouse over 55 yrsLending Institutions Scheduled Commercial Banks and Housing Finance Companies
Annuity Provider Life Insurance Companies
Borrower Interface Only with Banks / HFCsSecurity Mortgage of House Property in favour of Bank/HFCInterest Rate According to Market Conditions
Quantum of LoanBorrower Age 60 to 70 years 70 to 80 years 80 and above
Loan to Value 60% 70% 75%
Nature of Payment
Periodic - Monthly, Quarterly, Half-yearly or Annual
Lump sum or Line of Credit, subject to terms. Combination of above.
Lump Sum Upto 25% of Loan Amount, subject to terms of Lender.
Reverse Mortgage
Redemption Reserve
(RMRR)
Option for Bank/HFC to set aside up to 10% of loan amount as
RMRR to address property price adverse fluctuation risk. To be
adjusted with principal outstanding at time of loan redemption. 12
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Risks to RM Lenders:
Mortality Risks.
Interest Rate Risks.
Property Market Risk.
Moral Hazard Risk.
Liquidity Risks.
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Findings:
Reverse Mortgage arises as a regularsource of income for the old age peoples.
Terms and conditions are friendly with the
loan taker. Tax advantage in terms of reverse
mortgage.
With certain precautions it is becomingregular source of income for the old agersas well as for others whom there are lack
of regular income . 14
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Conclusions :
Offers an attractive option to the elderly tofinance their consumption needs on theirown.
RM, if widely available, might in factencourage more people in the workingpopulation to increase the proportion oftheir savings invested in housing.
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Suggestions:
Interest paid on reverse mortgage shouldbe explicitly allowed under income fromhouse property to give tax advantage tothe borrower.
Instead of merely capping loan amount as a
percentage of value, total outstandingincluding interest should be capped if theborrowers survive the term of loan. Theborrower must undertake to pay the
difference from his other sources. 16
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