A Study On Reverse Mortgage of SBI

Abstract

The concept of Reverse Mortgage (RM) is gaining momentum in India with the Finance Minister P. Chidambaram giving his nod in the Union Budget for 2007-08. Subsequently, the National Housing Bank (NHB), a subsidiary of the Reserve Bank oflndia (RBI), released the guidelines. This had led several banks to announce their intentions to launch the scheme. Taking the lead, Dewan Housing Finance Limited (DFHL) followed by Punjab National Bank (PNB) and Bank of Baroda (BOB), States Bank oflndia (SBI), etc. announced the scheme aimed at senior citizens. In a regular mortgage, a borrower mortgages his new/existing house with the lender in return for the loan amount, the same is charged at a particular interest rate and runs over a predetermined tenure. The borrower then has to repay the loan amount in the form of Equated Monthly Installments (EMis), which comprise of both principal and interest amounts. The property is utilized as a security to cover the risk of default on the borrower's part. In the RM, senior citizens (borrowers), who own a house property, but do not have regular income, can mortgage the same with the lender (a scheduled bank or a housing finance company-HDFC). In return, the lender makes periodic payment to the borrowers during their lifetime. lnspite of mortgaging the house property, the borrower can continue to stay in it during his entire life span and continue to receive regular flows of income from the lender as well. Also, since the borrower doesn't have to service the loan, he need not bother about repaying the 'borrowed amount' to the lender.