Reverse mortgage scheme for senior citizens enhanced

In a move to make reverse mortgage more attractive to senior citizens, the government has decided to give tax relief on installments earned by persons pledging their residential property.

National Housing Bank chairman and managing director R V Verma said on Monday that it has been decided that annuity on pledged property would be exempt from tax.

The reverse mortgage scheme is operated by National Housing Board and housing finance companies, banks and insurance companies.

Besides income tax benefit, the installment income or annuity is expected to increase at least three times, Verma said.

India's reverse mortgage market is worth upwards of Rs20,000 crore a year. Banks have so far this year sanctioned Rs1,800 crore and disbursed Rs800 crore under the reverse mortgage loan scheme since its launch in 2008, Verma said.

The revised scheme enables a person above the age of 60 years to avail of monthly payments from insurance companies as lifetime annuity against the mortgage of his / her house.

Earlier, the period of reverse mortgage loan was 20 years from the date of signing the agreement by the reverse mortgagor and the approved lending institution. But, now period has been extended to "the residual life time of the borrower," said a notification by the Central Board of Direct Taxes (CBDT).

As per the amendment, Life Insurance Corporation of India (LIC) and other insurer registered with the Insurance Regulatory and Development Authority (IRDA) have included as annuity sourcing institutions.

Under the scheme, on the borrower's death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest through sale of the house property.

The borrower or heir can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.

In 2006 India's second-largest private housing finance company, Dewan Housing Finance Corporation Limited (DHFL), is the first off the block In India with a reverse mortgage scheme, called 'Saksham' and targeted at retired senior citizens above 60 years of age (See: DHFL introduces India's first reverse mortgage).

In 2007 Finance minister P Chidambaram had announced during his term in the UPA-1that National Housing Bank would launch reverse mortgage products. (Also see: Why we need reverse mortgage)