REVERSE MORTGAGE-

CAN IT FINANCE
GERIATRIC HEALTCARE

Submitted to: Submitted By: Lead Group 10

Prof.Dr.Abhijit Chattoraj
Fizza Zaidi 21IN616
Prof.Maya Pandey
Himanshu Shekhar 21IN620

Nimisha Rastogi 21IN627

Palak Daryani 21IN628

Sakshi Yadav 21IN639

Siddharth Sridhar 21IN648

Advance Health Insurance

Table of Contents

Chapter 1: Introduction 2

Chapter 2: Literature Review 4

Chapter 3: Data and Findings 7

Chapter 4: Analysis 10

Chapter 5: Opportunities and Challenges Faced 16

Chapter 6: Conclusion 18

Chapter 7: References 19

1
 Advance Health Insurance

“Chapter 1- Introduction

Adults are typically most likely to develop serious health issues because as we grow, the body's
ability to adapt to and fight against sickness, illness, and infection decreases.”

“This suggests that there should be a greater focus on making sure elders receive the proper
preventative care, chronic disease management, and sick or urgent care on a regular basis or as
necessary.”

Geriatric Care:

“Geriatrics is a branch of medicine that focuses on meeting the unique medical needs that develop as
people age.

Elderly care is the main focus of geriatrics. Seniors who need geriatric care can preserve their
independence while having their overall health and wellbeing taken care of.”

Geriatric care has great significance as it takes into consideration the unique needs of the senior
people to get treatments that adhere to their specific requirements. As the body ages its potential to
react to the medications and drugs also diminishes, as a result they require special care management.

Significance of Reverse Mortgage Market for India

“The society in India has undergone a huge shift since last 4-5 decades. The joint family arrangement
has been overtaken by the nuclear family. The system of providing care for the elderly is no longer
in place. As was previously indicated, the public pension system hasn't been able to offer elderly
people an alternative kind of support. Age-related conditions put older persons at risk. They
experience the following problems :

• Outliving their retirement income

• Depending on their children to help pay expenses

• Getting sick and having no way to pay the expenses

• Not being able to guarantee an income for their spouse after they are gone

• Being able to live as long as they like in their own home “

2
Advance Health Insurance

“Given the current circumstances, the demand for

a solution that may assist these individuals in
resolving some of these issues is always
appreciated. All of these issues are addressed by
reverse mortgages and equity release solutions.
No matter their income, every Indian strives to
establish a house for themselves during their
working lives. He or she will have the chance to
make money from that house thanks to a reverse
mortgage. As long as the successors agree to
repay the debt, the borrower may transfer title
of the property to them as well. Government
must promote this endeavour since a product
like this lessens the burden on it to offer old age
security.”

Reverse Mortgage Working Methodology

“In Reverse mortgages one receives payments

from the lender in the form of a lump sum,
regular payments, a line of credit, or a mix of
these. Each month, the sum is increased by the
loan's interest and fees. This implies that as time
passes, your debt increases while the value of
your home diminishes.” “

The remaining payment isn't due until one

vacates the property or dies. “When that time
arrives, the debt is settled with the money from
the sale of the house. Any remaining equity is
given to the estate if any. If not, or if the loan's
Figure 1RM Working Methodology
value truly exceeds the value of the residence, the
Source – How Reverse Mortgage Works by
remaining balance is not due from the heirs.”
jagoinvestors.com
Contribution by: Nimisha Rastogi and Siddharth Sridhar

3
Advance Health Insurance

Chapter 2: Literature Review

“The US mortgage market is enormous and well-developed, offering a wide variety of mortgage
programmes with several choices for repayment. The most active mortgage market in the world is
found in the United States of America, where both private and institutional mortgage providers offer
their services. Other varieties of mortgage brokers carry out both individual and collective
organisational functions.

“For individuals who are already retired, those who will retire soon, and those who intend to retire in
the next 30 to 40 years, having alternate sources of retirement income is essential.

“As the retirement age approaches in India, retired government employees receive pensions, while
retired private sector workers do not receive any monthly income. People used to continue saving
for their retirements, but occasionally that may not be enough to allow them to live well in their
golden years. People in their later years’ experience numerous issues as a result of inadequate
funding. People today desire to live healthy lives, but they can only work until they are 60 years
old. After they retire, they will require a consistent source of income. For senior citizens, a reverse
mortgage is a fantastic alternative. People in the US used to take out reverse mortgages and
mortgage their homes to financial institutions in order to receive a consistent monthly income. They
typically do not stay with their kids, which leads to this circumstance. Their children truly have no
interest in their parents' property because they used to live in a nuclear household.”

“Reverse Mortgage is the reverse of a conventional mortgage loan.”

“In order to aid senior persons, the Indian government has made old age security one of its top
objectives. To that end, P Chidambaram, the minister of finance, introduced a brand-new financial
product called a reverse mortgage in the Union Budget for 2007–2008. "An agreement through
which a home owner borrows against the equity in his home and receives periodical tax-free
payments from the lender" is the definition of a reverse mortgage.”
Several of the studies consulted in compiling this report:

4
Advance Health Insurance

1. Amee Nagar, N. Mahesh (2017). Opportunities and Challenges of Reverse Mortgage Scheme
in Indian Scenario

“The cost of buying or building a home consumes a significant percentage of a person's life
resources; as a result, they feel emotionally attached to it. Senior adults are becoming more
prevalent, and ageing populations are becoming more dependent. They require a retirement plan or
regular case flow stream to supplement their pension or other sources of income and meet their
financial demands.

“With the aid of a reverse mortgage, people can convert some or all of their growing but locked-in
home equity into a regular income stream that will enable them to live comfortably in their senior
years. In many industrialised countries, the reverse mortgage financing programme is well-known.
The potential and challenges the Indian reverse mortgage scheme brings to the mortgage industry
are examined in this essay.””

2.Gupta, N. and Maleri (2012), A. “Challenges & Opportunities for Mortgage Industry in
India – A Study of ICICI Bank Ltd.”

Mortgages play a large role in the related industries of steel, cement, and other building materials,
creating jobs for both the lower and upper classes and contributing significantly to economic growth
in India and other emerging nations.

The subprime mortgage industry loss, from which developed nations are still recovering and which
had an immediate effect on markets around the world, was the main cause of the financial upturn
that rattled the world's financial markets, particularly those of developed nations. Thanks in part to
the sub-prime mortgage loss, India now has a more trustworthy technique for evaluating credit, and
developed nations have taken note to research the procedure and credit line strategy applied in the
Indian Sub-continent.

3. DW Johnson, David W. and Simkins, Zamira S.(2014) “Retirement Trends, Current

Monetary Policy and the reverse Mortgage Market.

“The decreasing value of retirees' retirement assets leads to an increase in their reliance on Social
Security. However, the long-term survival of the Social Security system is not yet established. In
retirement, having additional money is crucial. One other way is a reverse mortgage.

The challenges that retirees will still face are evaluated in this essay. Additionally, it illustrates how a
reverse mortgage can be used to augment retirement income and investigates potential effects of the

5
Advance Health Insurance

current monetary policy and recent modifications to the Home Equity Conversion Mortgage (HECM)
programme on the reverse mortgage market.”

4. Gupta, S. A. R. I. T. A., and S. Kumar. "Investigating relationship between demand and

awareness of reverse mortgage: An empirical analysis from India." (2017)

“Despite having a large potential, reverse mortgages (RM) have not significantly increased their market
share in India. The purpose of this study was to determine why the reverse mortgage market in India
hasn't grown much. According to earlier research, the RM market is hindered by factors including high
price, product complexity, Bequest, boring features, and low awareness. Research is being done on the
connection and link between the requirement for RM and awareness of it. The results show that the
respondents' awareness of RM is quite low.”

5. Shruti Ashok and Dhingra Deepika (2020).Reverse Mortgage: A Financial Planning Tool for
the Retirees— Case Study Approach in India

“Reverse mortgages have generally only been an option for elderly people who are struggling financially.
However, it also has a more favourable aspect. Through the use of a case study analysis, an effort is
made to present the reverse mortgage as a tool for financial planning. This illustration shows how a
retiree's financial requirements during a market downturn may be met by a reverse mortgage's line-of-
credit option using the coordinated approach.”

6. Garg Mansi (2015).A Study of Reverse Mortgage Scheme In India

“The current study provides insight into a novel method for preparing post-retirement liquidity. To plan
for the changing demands and living standards of the population throughout retirement years, the
financial institutions in India have developed a new loan product commonly known as "Reverse
Mortgage Loan."”

Contribution by: Sakshi Yadav, Palak Daryani

6
 Advance Health Insurance

Chapter 3: Data and Findings

Status of a reverse mortgage in India:

“Senior citizens are a major segment of Indian society, and dependency in old age is on the rise in the
country. While there is a large rise in longevity and low mortality, the expense of decent health care
facilities is rising and there is minimal social security. Senior citizens require a consistent cash flow
stream to augment their pension/other income and meet their financial obligations. Furthermore, the
long-term rise in residential housing prices has resulted in significant "home equity" wealth. The
Government of India had established the Reverse Mortgage Scheme in its 2007-08 budget. The
National Housing Board was been tasked with developing the regulatory framework that would allow
reverse mortgages to be used in the country.”

““Reverse mortgages are also popular in the United States. This mortgage loan is designed specifically
for senior adults. Individuals would accumulate residential properties during their lives. However, due
to liquidity concerns, Senior Citizens may be unable to enjoy the benefits of such residential property
after retirement, so reverse mortgages provide a solution to this problem. The primary benefit of a
reverse mortgage loan is that the borrower does not have to return the loan until he or she dies, and he
or she will receive monthly or lump sum payments from the mortgage bank to meet his or her needs.”

“The reverse mortgage scheme was established by the Indian government in the 2007-2008 union budget.
This scheme's regulator would be the National Housing Bank.

“A Reverse Mortgage is a contract between a homeowner and a financer that enables

the homeowner to receive a stream of income, especially after retirement.”

7
Advance Health Insurance

Existing Products: A Comparison :

Source: Hemanth Patna Paper on Financial Freedom Through Reverse Mortgage

1. Saksham: “Dewan Housing Finance Limited (DHFL) was the first company in India to introduce a
product called "Reverse Mortgage Loans." "Saksham" is the brand name of DHFL's product (DHFL,
2007). The desire to introduce these items was so strong that this product became operational even
before the NHB's detailed rules were issued. This shows lenders' perceptions of RML's potential.”

2.Baghban: Punjab National Bank was the first public sector bank to introduce a similar product,
"Baghban" (PNB, 2007).

3. State Bank of India and Others:” A number of lenders have begun to offer this product in the broad
category, including State Bank of India (SBI, 2009), Bank of Baroda (BOB), Central Bank of India,
LIC Housing Finance (LICHF, 2009), Allahabad Bank, Union Bank of India (UBI, 2009), Indian Bank
(IB, 2009), and others. “

“When compared to a traditional mortgage, the costs of reverse mortgages are relatively expensive. The
percentage range is between 2% to 8% of the loan amount. Reverse mortgage lenders must present
borrowers with a detailed cost breakdown in a document known as a TALC, or Total Annual Loan Cost.
This can be used to compare prices from various providers. The cost information below varies from
year to year, although the charge categories remain fairly stable. All fees associated with a reverse

8
Advance Health Insurance

mortgage are typically added to the loan balance. Seniors pay interest on loan costs despite paying
nothing out of pocket.”

If the house already has a fixed, low-interest mortgage that is being replaced with a higher-interest
reverse mortgage, the increased annual percentage rate is a hidden cost (APR).

Borrowers are obligated to maintain the property in excellent shape. There may be continuing repair
charges that the homeowner would not have incurred otherwise.

“The Reserve Bank of India has formulated the following guidelines for a reverse mortgage.

• The maximum loan amount would be up to 60% of the residential property's worth.
• The maximum mortgage term is 15 years, while the lowest is 10 years. Some banks currently
provide a maximum tenure of 20 years.
• Loan payments can be made monthly, quarterly, annually, or in one big sum.
• The lender will conduct a property reassessment every five years.
• “If the valuation has grown at that point, borrowers have the option of increasing the loan amount.
In this situation, they receive the increased amount as a lump sum.”
• “The amount obtained through a reverse mortgage is a loan, not income. As a result, it will not be
taxed. However, a borrower is subject to capital gains tax when the mortgagee alienates the
mortgaged property for the purpose of recovering the debt.”
• “Reverse mortgage interest rates might be fixed or variable. The current market interest rate would
decide the rate.”

Contribution by: Himanshu Shekhar and Nimisha Rastogi

9
 Advance Health Insurance

Chapter 4: Analysis

Analysis of the population:

“With 508 million people aged 60 years or over in 2015, Asia was home to 56 per cent of the global older
population, and, in 2030, Asia’s share of the world’s older persons is projected to increase to 60 per cent
when a projected 845 million people aged 60 years or over will reside in the region .According to
projections, by 2030, Asia will be home to more than half of the world’s oldest-old persons as well, up
from 48 per cent in 2015. Moreover, projections indicate that in 2050, nearly 62 per cent of people aged
60 years or over and 59 per cent of people aged 80 years or over will reside in Asia.”

10
Advance Health Insurance

Source: Sample Registration System Statistical Report 2019, Registrar General of India

“At the National level, percentage of aged (60+) population is 8.1. Composition of 60+ aged female
population is higher than males in all of the bigger States/UTs except Andhra Pradesh, Assam, Bihar,
Jammu & Kashmir, Odisha and Telangana. In rural areas, population in the age group 60+
constitutes 8.0 percent of the total population and variation in aged population ranges from 6.0
percent in Assam, Bihar and Delhi to 13.2 percent in Kerala. The proportion of aged population in
urban areas is 8.3 percent.”

“Though the Indian population is still comparatively 'young', India is also 'ageing'. Some
demographic projections for India indicate that the number of elderly (>60 yrs) 179 million by 2026,
and 218 million by 2030. Their share in the total population is projected to be 13.3% by 2026.”

11
Advance Health Insurance

The dependency ratio is projected to rise from 15% as of now to about 40% in the next four decades

The percentage of >60 in the population of Tamil Nadu and Kerala will reach about 15% by 2026
itself!

Average life expectancy in India right now in 2020 is around 69.73 in India at birth. The life

expectancy in India is continuously increasing every year from last many decades (a lot of people

have this myth that it’s decreasing)

Source: Article – How long will you live by jagoinvestors.com

12
Advance Health Insurance

“To conclude, a person who reached 60 yrs. of age as per above data can expect to live till 77-78 yrs.
(another 17-18 yrs.) This includes an unhealthy, broke retired person and a healthy, happy and
wealthy retired person also. “

“In 2020, life expectancy at age 60 years for India was 18.02 years.”

“As per a survey of the National Sample Survey Organization (NSSO) in 1994, less than 4% of the
elderly lived alone. A 1995-96 National Sample Survey of the elderly reported that about 5% of
them lived alone, another 10% lived with their spouses only and another 5% lived with relatives/
nonrelatives, other than their own children. In other words, co residence with children and other
relatives is predominant. “

“However, the following aspects are worrisome:

• The extent and adequacy of support, especially for widows

• Vulnerability of such support to shocks to family income
• As incomes and life expectancy rose in the now developed countries, simultaneously there
was a decline in co-residence rates and intergenerational support. It may happen in India too
• Strains due to demographic trends seem inevitable: fewer children must support parents for
longer periods of time. In a recent survey covering 30 cities, 70% of the respondents did not
expect their children to take care of them after retirement.
• Job related migration of youth within the country and emigration “

Contribution By : Nimisha Rastogi

13
Advance Health Insurance

Chapter 5: Opportunities and Challenges Faced

The home equity in a property can be released as a single payment or over the course of several payments
via a reverse mortgage; a type of financing that is available to seniors. Until the homeowner passes
away, sells their house, or vacates, they are not required to pay back the loan (e.g., into aged care). Two
parties are involved in it. The older citizen is the borrower, and the bank is the lender. The reverse
mortgage market in India offers potential. The opportunities provided by the reverse mortgage program
in the India market are given below:
1)This financial solution is intended for those with valuable real estate but insufficient cash flow to
cover expenses. They're frequently referred to as "asset rich but income poor. They will have the chance
to make money from that home thanks to a reverse mortgage.
2)Reverse mortgages will ensure that they receive consistent income based on the value of their house,
enabling them to improve their standard of living and access to healthcare.

3) Seniors who are not being looked after by their offspring can benefit from RM. By taking out
mortgage they can live independently.
4) It is a non-recourse loan, meaning the bank won't ever pursue anyone for the loan's repayment.
5) Only the value of the house can be used by the lenders as payment for the loan.
6) Taxes won't apply to the reverse mortgage proceeds because they are capital account payments.
7) It avoids losing ownership of the home, and at the same time, a source of regular cash flow is set up.

Despite the fact that reverse mortgages have many advantages, they are only now becoming popular in
India. The issues that Indian stakeholders are dealing with are as follows:
1) This product is unknown in the Indian mortgage industry. Although this product was introduced eight
to nine years ago, many people are still unaware of it.

2) People think this product will cause them to lose their possessions, which will lead to a decrease in
their assets.

3) A sentimental connection to the property. An individual spent his entire life building a house;
deciding to mortgage it is a difficult decision for them.

4) Parents view their home as one of their most significant possessions and wish to retain it for their
kids

14
Advance Health Insurance

5) Many senior citizens fear that financial institutions may defraud them since they are unaware of their
existence.

6) Elderly people who receive government pensions believe that these payments are adequate to allow
them to live well in their later years.

Despite the fact that seniors enjoy a lot of benefits and that this programme has great potential on the
Indian market, opportunities and problems show that people are not drawn to it.

The lack of information from financial institutions and the lack of interest from borrowers in the
programme as a result of their lack of knowledge and emotional ties to the property provide problems
for all parties involved.

Contribution by : Fizza Zaidi

15
Advance Health Insurance

Chapter 6: Conclusion

The reverse mortgage scheme is a retirement planning instrument that aids in creating a new stream of
income flow for legitimate purposes like paying for medical expenses. The lender ceases making
payments under the reverse mortgage plan after 20 years, but the borrower can stay in the home until
death without receiving any additional money. When property is being sold, the legal heirs enter the
scene. The disposal is not necessary if the heirs are able to pay back the loan's full amount.

On the other hand, even though the reverse mortgage scheme offers regular payouts , it is still not very
well known in India. This may be due to the fact that a person's home is their sole significant asset,
one that they have worked incredibly hard to acquire. In a nation like India, a person's lifelong savings,
particularly in the form of real estate, play a significant role. The residents have an emotional
connection to the home. The younger generation might not care about their parents, but we all know
that parents work and live for the sake of their kids. A person also desires to enjoy a debt-free life after
retirement, free from any commitments. As a result, we can conclude that this plan is still developing
and may become more well-known over time.

India has a young yet ageing population, which is only exceeded by China. Since the first census in
1961, it is found that both the population and the proportion of elderly people are growing. Schemes
for reverse mortgage loans have a tremendous amount of potential because there is a need for RML
and it is growing. The population are in need and genuinely seems to have a interest in it. Indian
government is promoting the RML schemes to compensate for the lack of social security measures
that are not in place. RML schemes benefit all parties involved, including regulators(GOI), lenders,
and borrowers .
Introducing reverse mortgage schemes is a good effort to provide aids to senior persons given the
change in lifestyles, breakup of joint family system which gives rise to nuclear families and shifting
socioeconomic patterns in India. Due to medical enhancements in the country Life Expectancy rates
are rising which is a good thing but on the other hand majority of elderly people.

Introducing reverse mortgage schemes is a good effort to provide aids to senior persons given the
change in lifestyles, breakup of joint family system which gives rise to nuclear families and shifting
socioeconomic patterns in India. Due to medical enhancements in the country Life Expectancy rates
are rising which is a good thing but on the other hand majority of elderly people often transfer their
wills to their children in a hope that they would lead a secure life.

16
Advance Health Insurance

The current situation in the India demonstrates that people will be keen to know about this scheme in a
few years because of the increasing prices in the economy, recession, geo-political affairs, new pension
schemes and many other factors. The scheme of reverse mortgage is still in its infancy stage but people
will come around. The younger generation (25–40 years) is now becoming interested in this plan. India
could end up being one of the largest markets for RML products in the world, worth up to USD 500
billion, based on its population size and demographics.

We can conclude that this plan is still developing and may become more well-known over time.

Contribution By: Palak Daryani

Contribution By: Palak Daryani

17
Advance Health Insurance

Chapter 7: References

1. Ashok Shruti and Dhingra (2020).Reverse Mortgage: A Financial Planning Tool for the
Retirees— Case Study Approach in India
2. Cho, Daniel & Katja Hanewald,& Sherris, Michael. (2013). Risk Management and Payout
Design of Reverse Mortgages
3. Dr .Pahuja Anurag (2016). Reverse Mortgage: An Empirical Study in Indian Perspective

4. Dr. Srivastava Namita (2016). Feasibility Study of Reverse Mortgage in India. , International
Journal of Research in IT, Management and Engineering
5. Garg Mansi (2015). A Study of Reverse Mortgage Scheme In India

6. Gupta, N. and Maleri, A.(2012) “Challenges & Opportunities for Mortgage Industry in
India – A Study of ICICI Bank Ltd.”
7. Gupta, S. A. R. I. T. A., and S. Kumar.(2017) "Investigating relationship between demand and
awareness of reverse mortgage: An empirical analysis from India."
8. Kaur Brar, Jasmindeep.(2011) Reverse Mortgage: It’s Potentials in Indian Market

9. Nagar, Amee. (2020). Indian mortgage industry with reference to reverse mortgage scheme:

A review.

10. Nagar Amee, N. Mahesh, (2017). Opportunities and Challenges of Reverse Mortgage Scheme
in Indian Scenario. International Journal of Computer Sciences and Engineering.
11. Stucki, Barbara & Group, Kenning. (2006). Using Reverse Mortgages to Manage the Financial
Risk of Long-Term Care.
12. Tripathi,Chandra Gireesh,(2009) Assessment of Reverse Mortgage Products in Indian Market
13. https://www.jagoinvestor.com/2020/09/life-expectancy-india.html

14. https://www.prb.org/resources/which-country-has-the-oldest-population/

18
Advance Health Insurance

15. https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/files/
documents/2020/May/un_2015_worldpopulationageing_report.pdf

Contribution By: Palak Daryani

19