Reverse Mortgage in India: A Grand Failure

Reverse mortgage is an agreement by which a home owner borrows against the equity in his home and receives regular tax free payments from the lender. The concept was launched as a new age innovative product in India with hopes of great success, though it is an age old practice in several western countries. Contrary to expectations, reverse Mortgage turned out to be a disappointment in India. It usually acts as a regular source of income for the elderly and the retired, especially in countries where parents do not usually live as dependants with their children.
Dewan Housing Finance Corporation Limited, India's second-largest private housing finance company, has launched a reverse mortgage scheme called 'Saksham' that is targeted at retired senior citizens above 60 years of age. Needless to say that it was not much of a success. In India, it is a common practice to see the elderly live with their children in families of 6 to 7 as dependants. This to start off with, eliminated the need of Reverse Mortgage as a unique product in India.
Less than 150 people in the country have availed the facility of Reverse Mortgage since the Finance Minister’s budget proposal last year to include the product’s introduction. The second problem lies in the Indian banking industry tweaking the features of reverse mortgage, thus making it unattractive. Usually a reverse mortgage is given for 60-70% of the property’s equity value to people who are 65 years or older. The tenure is for perpetuity until they are alive or when they want to sell their home, whichever is earlier. But in India, the banking industry's offer caps the available loan amount at Rs 50 lakh, instead of providing for an equitable percentage of the property's value, and limits the loan period to tenure of 15 years.
With these candy floss offers and the Indian mentality of not selling or mortgaging family homes, it might turn out to be very difficult to make Reverse Mortgage a successful financial product offered in the country.