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Seniors snub reverse mortgages

Indians are unwilling to mortgage their house, it seems

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KOLKATA: Indians are unwilling to mortgage their house, it seems.

The 20 financial companies, including banks and housing lenders, have processed just 550 applications and lent only Rs 350 crore against reverse mortgages, a product touted as the next big thing when it was launched about a year ago.

A C Mahajan, who has recently taken over as chairman and managing director of Canara Bank, spoke for Allahabad Bank where he was chairman earlier. “Allahabad Bank has not received much response,” he told DNA Money.

Even Canara Bank, which launched reverse mortgages under the name Canara Jeevan in November 2007, did not find any takers till March 2008.

Sensing this lukewarm response, National Housing Bank (NHB) has decided to tie up with HelpAge India, a non-government organisation that assists older people. The apex housing bank is now setting up counselling centres for senior citizens across the country.
S Sridhar, chairman and managing director, National Housing Bank, told DNA Money, “Initially there was confusion on tax exemptions, the reason why not many people were keen on the product. But the IT Act amended to exempt reverse mortgage loan payment from Income Tax. We are now trying to popularise the product and will be holding counselling sessions with senior citizens to help them understand the product”.

Two counselling centres are already operating in Delhi and Hyderabad and we plan centres in Kolkata, Chennai, Mumbai, Chandigarh, Pune and Bangalore to be set up shortly,” he said.

Popular in the West, the reverse mortgage facility allows home-owning senior citizens to mortgage the house and receive periodical payment from a lender against that mortgage. The owners continue to live in the mortgaged house. Upon the death of the home-owner or spouse (whichever is later), the ownership of the house goes to the bank. Such a loan does not need to be serviced, i e mortage-takers do not have to pay interest and is given for a period of 20 years.

So, why are people staying away from such a product? The answer, it seems, is emotional attachments.

“It is difficult to understand the psychology — perhaps the older age bracket is scared of borrowing. Or they are not in need of money by mortgaging property,” Mahajan told DNA Money.

“Our marketing officers and branches have been doing a lot to sell these products. But emotional attachments and family ties are too strong for people to think of mortgaging the house. But with the social fabric changing, this product is sure to become popular”, a Canara Bank official said.

A senior official of NHB in charge of marketing the product, said, “It is an excellent product that gives a senior citizen money for his livelihood. But the low response is basically due to the relationship concept existing in India. Our research has shown that many senior citizens feel that once they mortgage their property, their children will think otherwise and drift further away. It’s a difficult mental makeup to change.”

Examples can be found across India. Mohan Dharkar, 65, a family man based in Mumbai, is not ton keen on mortgaging his house. Neither is Aniruddha Banerjee of Kolkata, also married, and also 65 years of age. But both admit a steady flow of monthly money would make their life easier.

Then there is Indrani Sen, a bank employee who is single, and a few years away from retirement. “I have no hassles and will mortgage my own house and use that money,” she said.

g_nandini@dnaindia.net

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