REVERSE MORTGAGE SCHEME, 2008 - AN OVERVIEW

[Mr. M. GOVINDARAJAN]

     The Central Government has brought out a scheme for the purpose of senior citizens to face monetary problems.  In exercise of the powers conferred by Sec. 47(xvi) of the Income Tax Act, 1961 the Central Government made the scheme called as 'Reverse Mortgage Scheme, 2008' ('scheme' for short).  The scheme came into force from the 1^st day of April, 2008.

     Reverse mortgage is defined as mortgage of a capital asset by an eligible person against a loan obtained by him from an approved lending institution.  The scheme provides a list of approved lending institution as follows:

National Housing Bank established under Sec. 3 of the National Housing Bank Act, 1987;

A scheduled bank included in the second schedule to the Reserve Bank of India Act, 1934; or

A housing finance company registered with the National Housing bank.

The scheme defines the term 'reverse mortgagor' as the eligible person who has mortgaged the capital asset for the purpose of obtaining loan.   Then the question arises who is the eligible person.   The scheme also defines the term 'eligible person' as-

Any person, being an individual, who is of, or above, the age of sixty years; or

Any married couple, if either of the husband or wife is of, or above, the age of sixty years.

Reverse Mortgage transaction, according to the scheme is a transaction in which the loan may be disbursed to the reverse mortgagor but does not include transaction of sale, or disposal of the property for settlement of loan.

PROCEDURE:

1. Any eligible person may enter into a reverse mortgage transaction by applying in writing to the approved lending institution, if the capital asset, being mortgaged is owned by him and free from encumbrances;

2. The approved lending institution on receipt of the application shall process the application received from the eligible person and it may charge nominal amount as processing fees;

3. The approved lending institution, before taking mortgage of capital asset and before disbursing any loan under reverse scheme shall enter into a loan agreement in writing with the reverse mortgagor and obtain and maintain the following particulars from the reverse mortgagor-

Name and address of the owner of the capital asset;

Permanent Account Number of the owner of the capital asset;

Total area, including built up or covered area, of the capital asset;

Cost of acquisition and the year of acquisition of the capital asset;

Cost of improvement and the year of improvement of the capital asset;

Name, address and Permanent Account Number of all the legal heirs and estate of the owner of the capital asset;

A copy of the registered will of the owner of the capital asset including any changes made therein during the currency of the term of the loan.

4. The approved lending institution may disburse the loan to the reverse mortgagor either by period payments to be decided mutually between the approved lending institution and the reverse mortgagor or lump sum payment in one more trenches, to the extent that the aggregate of the amount disbursed as lump sum payments does not exceed fifty per cent of the total loan amount sanctioned.

5. The period of mortgage shall not be exceeding twenty years from the date of signing the agreement by the reverse mortgagor and the approved lending institution.

6. The reverse mortgagor, or his legal heirs or estate, shall be liable for repayment of the principal amount of loan along with the interest to the approved lending institution at the time of foreclosure of the loan agreement.