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 Role 2
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 crore 3 REVERSE MORTGAGE LOAN: BACKDROP
4 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 5 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.
6 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
7 BORROWER BANK / HFC LIFE INSURANCE COMPANY RMLeA Payment Mortgage of House Annuity Payment 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
8 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 Companies Borrower Interface Only with Banks / HFCs Security Mortgage of House Property in favour of Bank/HFC Interest Rate According to Market Conditions Quantum of Loan Borrower Age 60 to 70 years70 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
9 RML enabled ANNUITY: OPTIONS Option 1 – Life time Annuity without Return of Purchase Price: Life-time Annuity payment benefit only for borrower’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), purchase price (initial net premium amount) paid to the Bank account of borrower. Returned Purchase price is used to adjust for principal outstanding.
10 Annuity Options Option 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. Servicing Fees Maximum 1.50% p.a. of Principal Outstanding Maximum 1.00% p.a. of Principal Outstanding Taxation Yes. As applicable under Section 56 of Income Tax Act, 1961 RML enabled ANNUITIES: COMPARISON
11 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 sumSame. Loan Repayment Not during Borrower’s LifetimeSame. Recourse No Negative Equity GuaranteeSame. 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 AvailableRMRR option to Banks/HFCs. RML AND RMLeA: A COMPARISON
12 Particulars Net Monthly RMLeA* For Life time Age Property ValueLTVOption-1Option-2 60 Rs.50,00,00060%Rs.17,295 p.mRs.10,955 p.m 65 Rs.50,00,00060%Rs.19.935 p.mRs.11,335 p.m 70 Rs.50,00,00060%Rs.24080 p.mRs.12095 p.m 75 Rs.50,00,00070%Rs.35,830 p.mRs.16,555 p.m 80 Rs.50,00,00075%Rs.51,597 p.mRs.24,941 p.m RMLeA - INDICATIVE AMOUNTS RML (2007) upto 20 yrs Rs.4214 p.m Rs.4916 p.m Rs.5267 p.m In addition to the above payments, Bonus payable under certain circumstances Annuity payments are subject to tax in the hands of Senior Citizens RML payments exempt from tax under Section 10(43) of the IT Act
13 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