The Finance Minister launched the reverse mortgage scheme in India to cater to the needs of the retired seniors. However, the reverse mortgage product in India was met with a very lukewarm response. Reports state that the year the reverse mortgage program was introduced in the country, there were as many as 100 takers in the entire year. This figure is far below the figure, which was really expected.
Despite advantages, the product did not take off well:
The reverse mortgage plan has been very popular in the Western countries owing to its multifaceted benefits. After retirement, the main nagging concern is the retired households' source of income because the wage stops. One has maintained a particular living standard and that requires to be maintained if not to a full extent at least to a certain extent. This is usually done with the help of the loan money.
Reverse mortgage repayment can be made after a borrowers death.
The senior will not have to abandon the house and continues staying in the same premises.
The loan money may be used for various financial requirements. Medical expenses, paying taxes, paying for repair work undertaken or just taking on a pleasure trip.
The ownership right of the house is also retained.
The loan amount many are availed of as a lump sum, line of credit or every month as monthly payments.
It was observed that even though there were scores of advantages, people did not avail of the product. Experts are of the opinion that the main attributable factor was that the people were not clear of the laws pertaining to reverse mortgage products. People wanted clarification of reverse mortgage laws.
Desired clarification of reverse mortgage laws:
It was not clear whether the loan amount was of a capital nature. There were several other questions pertaining to the tax imposed on the security of reverse mortgage. Disbursement of the loan amount as capital gains continuously plagued the minds of the people.
Of late, the issues related to taxation have been attended to in the Financial Bill. A proviso was included in Section 47 of Income Tax Act. This envisages that the mortgage is not a transfer. Amendments in Section 10 have been effected to deal with the tax exemptions pertaining to capital receipt.
However, issues relating to repossession as well as foreclosures have still not been made clear. Owing to such blurred concept of reverse mortgage programs, the reverse mortgage product did not strike roots in the country.