Experts are of the opinion that one may avail of a cheap reverse mortgage from RBI(Reserve Bank of India), provided the risk weight age on loans are reduced. Presently, authorities are in a dilemma as to whether the reverse mortgage loans ought to be treated as retail loans or personal loans. Several banks in India are seeking clarification for the same confusion from the Reserve Bank of India.
The Capital adequacy norms require that if an individual is opting for a loan of Rs 100, Rs 9 is kept aside as capital provided the risk weightage is fixed at 100%. It may be mentioned here that the capital, which is kept aside by the banks may become less provided the risk weightage is also less.
The prevailing guideline is that the banks assign a risk weightage of 125% as far as the personal loans are concerned. The same figure becomes 75% for a retail loan. Many are of the opinion that the reverse mortgage loans should fall in the category of personal loans since the amount borrowed in case of a reverse mortgage loan ranges between Rs 1 lac to Rs 50 lac.
When an individual avails of a personal loan he is not required to state the reason as to why the loan is being availed. This is in sharp contrast to the other types of loans like education loan and housing loans where reasons are specified.
The reverse mortgage loan may not be of much benefit to the banks. The reason being during the first 15 years of the loan tenure, the banks do not earn any money from the reverse mortgage loan. Even if the property is sold and the cost of the house is more than that of the loan amount, the excess amount is availed by the successors or the heir and not the lending institutions.
The State Bank of India has 10% as the margin but charges 10.75%.
Allahabad Bank has a margin of 40% but charges 11%.
PNB or Punjab National Bank has a margin of 20% but charges 10%.
As far as the rates of interest are concerned, a fixed rate is being charged by most of the banks. These rates are to be re framed at intervals of 5 years.
Dewan Housing as well as LIC Housing Finance are two non-banking financial institutions to offer reverse mortgage.