BANGALORE: The country's senior citizens have very little social or monetary security. Many who depend on pension are struggling to supplement their income.

This year's Union Budget has redressed this problem to a certain extent with a scheme to harness landed property, mainly houses, of senior citizens to provide them with financial assistance.

The Centre, through the National Housing Board (NHB), has come up with a draft proposal for "reverse mortgage" of houses. Under this scheme, a senior citizen can use the house as an asset. The house is mortgaged to a lender, who makes periodic payments to the borrower during the latter's lifetime. The borrower is not required to service the loan during his lifetime and, therefore, does not make monthly repayments of principal and interest to the lender.

After the borrower's death or on his leaving the house permanently, the loan is redeemed along with accumulated interest by selling the house.

The borrower or his/her heirs can also repay or prepay the loan with accumulated interest and have the mortgage released without selling the property.

According to the draft, primary lending institutions, mainly scheduled banks and housing finance companies registered with the NHB, are required to give such loans to senior citizens. Those above 60 years of age are categorized as senior citizens. Married couples will be eligible for the loan as joint borrowers, provided both are above 60 years of age.

The borrower should be the owner of a residential property (house or flat) with clear title indicating their ownership and it should be free from any encumbrances. The loan amount will depend on the market value of the property, as assessed by the lending institution, age of the borrower and the prevalent interest rate.

Payment

The draft suggests that periodic payments (monthly, quarterly, annual) can be arrived at and decided mutually between the institution and the borrower. The payment can also be a lump sum in one or more tranches or committed line of credit.

The loan can be used for upgrading, renovating and extending the property, home improvement, maintenance and insurance, expenditure for medical emergencies, maintenance of family and supplementing income, repayment of existing loan taken for the property, supplementing pension/other income or any other genuine need

The maximum period of the loan is 15 years and the lending institution can fix the interest rate — fixed or floating — in the usual manner based on risk perception, loan pricing policy and other factors.

The NHB has invited suggestions on the draft from senior citizens, banks and other financial institutions.

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