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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 Role2

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 crore3

REVERSE MORTGAGE LOAN: BACKDROP

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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

RML enabled ANNUITY: THE NEW CONCEPT

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NHB has now conceived a new RML enabled Annuity in 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.

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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

RMLeA: THE NEW CONCEPT

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BORROWER

BANK / HFC

LIFE INSURANCE COMPANY

RMLeA Payment

Mortgage of House

Annuity Paymen

t

Premium amount for

Annuity Purchase

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.

HOW IT WORKS

Group Annuity Contract

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Eligible Borrowers

Senior Citizens above 60 years and spouse over 55 yrs

Lending Institutions

Scheduled Commercial Banks and Housing Finance Companies

Annuity Provider Life Insurance CompaniesBorrower Interface

Only with Banks / HFCs

Security Mortgage of House Property in favour of Bank/HFCInterest Rate According to Market Conditions

Quantum of Loan

Borrower Age

60 to 70 years

70 to 80 years

80 and above

Loan to Value

60% 70% 75%

Nature of Payment

• Periodic - Monthly, Quarterly, Half-yearly or Annual• Lump sum or Line of Credit, subject to terms.• Combination of above.

Lump Sum Upto 25% of Loan Amount, subject to terms of Lender.Reverse Mortgage Redemption Reserve (RMRR)

Option for Bank/HFC to set aside upto 10% of loan amount as RMRR to address property price adverse fluctuation risk. To be adjusted with principal outstanding at time of loan redemption.

RML enabled ANNUITY: FEATURES

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RML enabled ANNUITY: OPTIONS

Option 1 – Life time Annuity without Return of Purchase Price: Life-time Annuity payment benefit only forborrower’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),

purchaseprice (initial net premium amount) paid to the

Bankaccount of borrower. Returned Purchase price

is usedto adjust for principal outstanding.

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Annuity OptionsOption 1

(No Return of Purchase Price)

Option 2(Return of Purchase Price)

Borrower benefits

Life Time Annuity +Bonus (subject to

terms)

Life Time Annuity + Bonus (subject to terms)

On Borrowers Death…

Annuity Payment ceases.Annuity Payment ceases and

Purchase Price Returned

Joint Borrowers

Covers Joint borrowers separately. Both can obtain separate Life time Annuities.

Covers both simultaneously. On death of primary borrower, co-borrower automatically eligible for receiving Annuity

Prepayment of Loan

Possible without prepayment levy. Annuity will continue to flow till borrower's demise.

Possible without prepayment levy. Annuity will continue to flow till borrower's demise.

Servicing FeesMaximum 1.50% p.a. of Principal Outstanding

Maximum 1.00% p.a. of Principal Outstanding

TaxationYes. As applicable under Section 56 of Income Tax Act, 1961

RML enabled ANNUITIES: COMPARISON

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RML (2007) RML enabled Annuity

Eligibility •House Owning Senior Citizens 60+ yrs and Spouse 55+ yrs

Same.

Security Mortgage of House Property. Same.

Nature of Payment • Periodic payments / Lump sum

Same.

Loan Repayment Not during Borrower’s Lifetime

Same.

Recourse No Negative Equity Guarantee

Same.

Loan Settlement • Sale of House. Heirs can repay.

Same.

Periodic Payment Tenure

Maximum 20 years. Payments for Life time.

Certainty of Payments

Not certain. May stop if house value drops below loan O/s.

Assured Payments for lifetime.

Prepayment of Loan •Allowed. Mortgage Released.• Loan payment Stops.

•Allowed. Mortgage Released.•Annuity payment Continues.

Servicing Fees No fees. Banks/HFCs to levy fees.

Revaluation and Loan Adjustment

Atleast once in 5 years.Possible to increase/reduce loan.

Atleast once in 5 years. Possible to increase loan.

Reverse Mortgage Redemption Reserve

Not Available RMRR option to Banks/HFCs.

RML AND RMLeA: A COMPARISON

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ParticularsNet Monthly RMLeA*

For Life time

AgeProperty

Value LTV Option-1 Option-2

60 Rs.50,00,000 60%Rs.17,295

p.m Rs.10,955 p.m

65 Rs.50,00,000 60%Rs.19.935

p.m Rs.11,335 p.m70 Rs.50,00,000 60% Rs.24080 p.m Rs.12095 p.m

75 Rs.50,00,000 70%Rs.35,830

p.m Rs.16,555 p.m

80 Rs.50,00,000 75%Rs.51,597

p.m Rs.24,941 p.m

RMLeA - INDICATIVE AMOUNTS

RML (2007) 

 upto 20 yrs

Rs.4214 p.m 

Rs.4214 p.m

Rs.4214 p.m 

Rs.4916 p.m

Rs.5267 p.m 

In addition to the above payments, Bonus payable under certain circumstancesAnnuity payments are subject to tax in the hands of Senior CitizensRML payments exempt from tax under Section 10(43) of the IT Act

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Senior Citizen Counseling: Counseling Centers opened in:

Chandigarh New Delhi (2 Centers) Hyderabad Kolkata Bengaluru Chennai

NHB’s PROMOTIONAL ROLE

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

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NHB’s RML Counseling Centers: A Glimpse

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Please visit www.nhb.org.in for details.