Rmlea - p r Jaishankar, Agm, Nhb

7/27/2019 Rmlea - p r Jaishankar, Agm, Nhb

http://slidepdf.com/reader/full/rmlea-p-r-jaishankar-agm-nhb 1/15

1



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 taxapplicable 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 inSeptember, 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 tomaximum 20 years.

Quantum of periodic payments were

limited – mainly dependent on InterestRate

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 INSURANCECOMPANY

RMLeAPayment

Mortgageof House

AnnuityPayment

Premium amountfor 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 AnnuityContract



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 LoanBorrower 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



9

RML enabled ANNUITY: OPTIONS

Option 1 – Life time Annuity without Return ofPurchase Price:

Life-time Annuity payment benefit only for

borrower’s life time.

Option 2 – Life time Annuity with Return ofPurchase 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 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 benefitsLife 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 BorrowersCovers Joint borrowersseparately. 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

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 Citizens60+ 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 housevalue 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 LoanAdjustment

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

Atleast once in 5 years.Possible to increase loan.

Reverse MortgageRedemption Reserve

Not Available RMRR option to Banks/HFCs.

RML AND RMLeA: A COMPARISON



12

Particulars

Net Monthly RMLeA*

For Life time

Age Property 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.m

70 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 circumstances Annuity payments are subject to tax in the hands of Senior CitizensRML 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



14

NHB’s RML Counseling Centers: A Glimpse



15

Please visit www nhb org in

for details.

Documents

Rmlea - p r Jaishankar, Agm, Nhb