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1 A PRODUCT FOR SENIOR CITIZENS A TECHNICAL PRESENTATION for discussion purposes only February, 2007 For restricted circulation 1

2 REVERSE MORTGAGE Reverse Mortgage is a mortgage loan for Senior Citizens (over 62 years) who today, generally are not eligible for any form of mortgage loan In a Reverse Mortgage The lender makes periodic payments (including lump sum payments) to the borrower i.e. the payment stream is reversed, as compared to a conventional mortgage The loan is not required to be serviced, i.e. payment of installment or interest, as long as the borrower is alive and in occupation of the property The loan will be repaid on the death of the borrower and the spouse (usually a co-obligant) or on permanent movement through sale of property After adjusting the principal amount of the loan and accumulated interest, surplus will go to the Estate of the deceased The loan can be prepaid together with accumulated interest at any point in time without any prepayment charges Maximum period of loan 15 years 2

3 RML : BENEFITS Enables Senior/Elderly Citizens owning a house but having inadequate income to meet their needs Enables Senior Citizens to meet unexpected lump sum expenditure needs such as renovation/ repairs to house, hospitalization, etc. Borrower owns and occupies the home till demise or changes residence. Even after demise, the spouse can continue to stay until demise. If spouse is co-borrower, will continue to receive payment (upto 15 years from grant of loan) Payment received from a Reverse Mortgage is considered as loan and not income from tax angle in many countries Reverse Mortgage can be a partial substitute for a Social Security Scheme for Home Owning Senior Citizens Will be particularly useful to Senior Citizens who have no/unwilling family to support them 3

4 OTHER MAJOR TERMS-REVERSE MORTGAGE Borrower does not require an income to qualify for reverse mortgage loan Loan amount depends on: Borrower s age Value of borrower s House Property Prevailing interest rates of lending institutions Loan amount to the assessed value of the house is determined as per actuarial calculations. Will be reassessed in periodic intervals of say, five years Property has to be unencumbered and mortgageable Flexibility to the borrower in availing the loan i.e. Loan will be disbursed in periodic installments or a lump sum or as a line of credit to be drawn in times of need. However, aggregate cannot exceed the total amount of loan assessed. Loan amount can be used by the borrower for renovating/repairing house, as also for personal uses Borrower will remain owner of property throughout the period of the loan Borrower will be responsible for paying property tax, house insurance premium, etc. Loan shall become due and payable only when the last surviving borrower dies, sells the home, or permanently moves out of the home In cases where the borrower lives longer than 15 years, the maximum period of the loan, payments will not be made by the lender. However, the borrower can continue to occupy. 4

5 REVERSE MORTGAGE Role of Reverse Mortgage is one of s new initiatives to (catalyze credit flow to housing for the unserved & underserved sections), such as rural, urban poor, self employed, slum dwellers, senior citizens, working women, workers,... seeks to refinance Banks/ HFCs to extend reverse mortgage loan to senior citizens also seeks to guarantee to the senior citizen borrowers, the obligations of Banks/ HFCs to make regular payments over the period. as a RBI subsidiary may be expected to provide comfort to senior citizens, who are mortgaging their houses upfront to receive payments over time. New Product Development by Market Feedback Desk Research Interaction with Potential Users PRODUCT LAUNCH Obtaining Regulatory Approval Discussions with Banks/HFCs s Internal Approval Legal and other Professional Advice Market Research by Professional Agency 5

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