Reverse mortgage scheme to the rescue of senior citizens

Excerpts from Power Breakfast on CNBC-TV18 Watch the full show » Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

For elderly people, the houses they live in are often their only or main source of wealth. CNBC-TV18 reports on National Housing Bank's plan, which enables senior citizens to live it up without losing their roof.

For the elderly, a house is a prized possession, a tangible expression of accumulated savings that have appreciated over time. But because it is also a home, the value of a house is just so much money in a mattress. If their pension or liquid savings are not big enough, they cannot live it up.

Such people can be said to typically face a cash flow problem. For them, National Housing Bank has come up with a reverse mortgage option, which allows them to pledge the house and get a dollop of money, monthly or in one go.

"One can opt for lump sum payment, he can have it monthly or on a committed line of credit and would be able to use it whenever needed. And when he dies or permanently leaves the house, the house will be sold by the bank to draw the value of loan and interest. The excess will be returned to the heir of the senior citizen" says S Sridhar, CMD, National Housing Bank.

The facility will be made available by banks to people aged 62 years and above. National Housing Bank will do the re-financing. The loan will be for up to 15 years. The value unlocked will be a function of borrower's age and value of the house. The interest will be based on the prevailing rate.

National Housing Bank is currently sorting out issues with CBDT that the finance received by senior citizens is treated as a loan and not income. The bank is also trying to build in a mechanism where the loan amount could flow beyond 15 years.

Here's how you can get reverse mortgage to pay for you