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Exploring the Benefits of Reverse Mortgage Loan-Enabled Annuity in India

Discover the evolution of Reverse Mortgage Loan (RML) to RMLeA, providing assured lifetime payments to senior citizens. Learn about the features, options, comparison, and the pioneering role of the National Housing Bank (NHB) in promoting this innovative financial product. Understand how RMLeA works, its structure, and the collaboration between banks, housing finance companies, and life insurance sectors. Explore the tax benefits, operational guidelines, and the significance of RMLeA in securing financial stability for elderly homeowners in India.

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Exploring the Benefits of Reverse Mortgage Loan-Enabled Annuity in India

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  1. National Housing Bank Reverse Mortgage Loan enabled Annuity

  2. PRESENTATION STRUCTURE • Reverse Mortgage Loan: Background • Reverse Mortgage Loan (2007) • RML enabled Annuity: The New Concept • How it Works • RML enabled Annuity: Main Features • RML and RMLeA - Comparison • NHB’s Promotional Role

  3. NHB introduced the Reverse Mortgage Loan scheme in May 2007 (first time in India), pursuant to the Government’s Budget announcement for 2007-08; NHB issued Operational Guidelines for the product; In the Union Budget 2008-09, all payments made under RML were exempt from tax under Section 10(43); Capital Gains tax applicable to the borrower only at time of alienation of property. Reverse Mortgage Scheme was notified by the Government of India vide Notification No. 93/2008/F.No. 142/06/2008-TPL in September, 2008 . The scheme is presently implemented by 23 Banks and 2 HFCs. No. of Loans: 6400; Amount sanctioned: Rs.1200 crore REVERSE MORTGAGE LOAN: BACKDROP 3

  4. RML (2007): MAIN LIMITATIONS • Payment tenure to borrowers – limited to maximum 20 years. • Quantum of periodic payments were limited – mainly dependent on Interest Rate • Uncertainty over continuance of periodic payments if property value declined

  5. RML enabled ANNUITY: THE NEW CONCEPT • NHB has now conceived a new RML enabled Annuityin December 2009 to address : • Payment Tenure (20 years) Limitation • Limited Quantum of RML Amounts • Uncertainty over continuance of periodic payments • RMLeA is a newly improved version of RML. • RMLeA - Provides Assured Life-time Payments to house owning Senior Citizens against mortgage of their residential property. • RMLeA is the result of Collaboration of Life Insurance Sector with the Banking Sector and Housing Finance Market – First time in India.

  6. RMLeA: THE NEW CONCEPT • Banks / HFCs – Address Property Mortgage related risks • Insurance Companies - Address longevity risk, • Leads to specialization and better efficiency in the system - ultimately benefiting Senior Citizens. • Borrowers to have dealings only with Banks / HFCs. • The terms of Reverse Mortgage similar to RML (2007) terms. • NHB has issued Operational Guidelines for RMLeA. • Product launched by Central Bank of India in collaboration with Star Union Dai-ichi Life Insurance Co. Ltd. • Product Approved by IRDA

  7. HOW IT WORKS BORROWER RMLeA Payment Mortgage of House Group Annuity Contract BANK / HFC Premium amount for Annuity Purchase Annuity Payment LIFE INSURANCE COMPANY • 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.

  8. RML enabled ANNUITY: FEATURES

  9. RML enabled ANNUITY: OPTIONS • Option 1– Life time Annuity without Return of Purchase Price: • Life-time Annuity payment benefit only for • borrower’s life time. • Option 2 – Life time Annuity with Return of Purchase Price: • Life-time annuity payment till demise of borrower(s). • After demise of the borrower (and spouse), purchase • price (initial net premium amount) paid to the Bank • account of borrower. Returned Purchase price is used • to adjust for principal outstanding.

  10. RML enabled ANNUITIES: COMPARISON

  11. RML AND RMLeA: A COMPARISON

  12. RMLeA - INDICATIVE AMOUNTS In addition to the above payments, Bonus payableunder certain circumstances Annuity payments are subject to tax in the hands of Senior Citizens RML payments exempt from tax under Section 10(43) of the IT Act

  13. NHB’s PROMOTIONAL ROLE • Senior Citizen Counseling: • Counseling Centers opened in: • Chandigarh • New Delhi (2 Centers) • Hyderabad • Kolkata • Bengaluru • Chennai • Prudential Norms for RML: Working Group constituted by RBI • Tax exemption on RMLeA: NHB engaging attention of CBDT • Capacity Building of Banks and HFCs: Training, Seminars • Product Research for Value Additions

  14. NHB’s RML Counseling Centers: A Glimpse

  15. Please visit www.nhb.org.infor details.

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