Stakes for the owner
The draft guidelines issued by National Housing Bank (NHB) recently on reverse mortgage is a welcome step for those who like to continue living in their own homes and have a supplemental income. This concept was first conceived in the U.S. to help senior citizens to take loans and meet their living expenses or medical expenses without having to sell their houses.
The NHB proposes to permit senior citizens to mortgage their residential property to either a bank or a housing finance company, while retaining their right to stay in the premises. The taxes and maintenance charges are to be paid by the owner. Perhaps, it may be mandatory to have the building insured. This scheme can be made use of only by owners of residential properties who are above 60 years of age. They can take loans up to 60 per cent of the value of the house. This is 10 per cent more than what is offered by a private housing finance company. The approved valuers will determine the value of the building.
Married couples who are more than 60 years old can apply as joint borrowers provided the property is used as their permanent residence. Properties used for non-residential purposes are not eligible. Loans can be taken on a monthly, quarterly or annual basis. There are also options to have a one-time payment, or a committed line of credit.
The mortgaged property is to be revalued by the lender bank or company frequently or at least once in five years. The expenses towards this are to be paid by the house owner. The mortgage will be registered and those expenses too will be debited to the owners' account. When the mortgage period expires or if the owner dies, the banks and housing finance companies will recover the loan, along with interest, by selling the property.
Both the parties, the owner and lender, can extend the expiry period if they chose to do so.
While doing the revaluation of the property the value should not be reduced even if the market values drop.
However, any appreciation in value can be passed on.
The interest rates should be fixed. The NHB should frame guidelines to impose a ceiling on the fees chargeable towards processing and registration.
It is not clear whether properties partly let out for residential use and properties acquired by inheritance (on which the children of the owners have a share) are eligible for this scheme.
C.H. GOPINATHA RAO
The author is former National President, Institution of Valuers.
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