1. PRESENTATION STRUCTURE Reverse Mortgage Loan: Background Reverse Mortgage Loan (2007) RML enabled Annuity: The New Concept How it Works RML.
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PRESENTATION STRUCTURE
Reverse Mortgage Loan: Background
Reverse Mortgage Loan (2007)
RML enabled Annuity: The New
Concept
How it Works
RML enabled Annuity: Main Features
RML and RMLeA - Comparison
NHB’s Promotional Role2
NHB introduced the Reverse Mortgage Loan scheme in May 2007 (first time in India), pursuant to the Government’s Budget announcement for 2007-08; NHB issued Operational Guidelines for the product;
In the Union Budget 2008-09, all payments made under RML were exempt from tax under Section 10(43); Capital Gains tax applicable to the borrower only at time of alienation of property.
Reverse Mortgage Scheme was notified by the Government of India vide Notification No. 93/2008/F.No. 142/06/2008-TPL in September, 2008 .
The scheme is presently implemented by 23 Banks and 2 HFCs.
No. of Loans: 6400; Amount sanctioned: Rs.1200 crore3
REVERSE MORTGAGE LOAN: BACKDROP
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RML (2007): MAIN LIMITATIONS
Payment tenure to borrowers – limited to maximum 20 years.
Quantum of periodic payments were limited – mainly dependent on Interest Rate
Uncertainty over continuance of periodic payments if property value declined
RML enabled ANNUITY: THE NEW CONCEPT
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NHB has now conceived a new RML enabled Annuity in December 2009 to address :
Payment Tenure (20 years) Limitation Limited Quantum of RML Amounts Uncertainty over continuance of periodic payments
RMLeA is a newly improved version of RML.
RMLeA - Provides Assured Life-time Payments to house owning Senior Citizens against mortgage of their residential property.
RMLeA is the result of Collaboration of Life Insurance Sector with the Banking Sector and Housing Finance Market – First time in India.
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Banks / HFCs – Address Property Mortgage related risks
Insurance Companies - Address longevity risk,
Leads to specialization and better efficiency in the system - ultimately benefiting Senior Citizens.
Borrowers to have dealings only with Banks / HFCs.
The terms of Reverse Mortgage similar to RML (2007) terms.
NHB has issued Operational Guidelines for RMLeA.
Product launched by Central Bank of India in collaboration with Star Union Dai-ichi Life Insurance Co. Ltd.
Product Approved by IRDA
RMLeA: THE NEW CONCEPT
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BORROWER
BANK / HFC
LIFE INSURANCE COMPANY
RMLeA Payment
Mortgage of House
Annuity Paymen
t
Premium amount for
Annuity Purchase
Assured Life time payments till demise of surviving borrower.No repayments till borrower lives and occupies house.Single Collateral; Borrower liability not to exceed value of house.Loan settlement through sale of house. Heirs may repay without sale.Banks to receive servicing fee. Option to create a RM Redemption Reserve.
HOW IT WORKS
Group Annuity Contract
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Eligible Borrowers
Senior Citizens above 60 years and spouse over 55 yrs
Lending Institutions
Scheduled Commercial Banks and Housing Finance Companies
Annuity Provider Life Insurance CompaniesBorrower Interface
Only with Banks / HFCs
Security Mortgage of House Property in favour of Bank/HFCInterest Rate According to Market Conditions
Quantum of Loan
Borrower Age
60 to 70 years
70 to 80 years
80 and above
Loan to Value
60% 70% 75%
Nature of Payment
• Periodic - Monthly, Quarterly, Half-yearly or Annual• Lump sum or Line of Credit, subject to terms.• Combination of above.
Lump Sum Upto 25% of Loan Amount, subject to terms of Lender.Reverse Mortgage Redemption Reserve (RMRR)
Option for Bank/HFC to set aside upto 10% of loan amount as RMRR to address property price adverse fluctuation risk. To be adjusted with principal outstanding at time of loan redemption.
RML enabled ANNUITY: FEATURES
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RML enabled ANNUITY: OPTIONS
Option 1 – Life time Annuity without Return of Purchase Price: Life-time Annuity payment benefit only forborrower’s life time.
Option 2 – Life time Annuity with Return of Purchase Price: Life-time annuity payment till demise of
borrower(s).After demise of the borrower (and spouse),
purchaseprice (initial net premium amount) paid to the
Bankaccount of borrower. Returned Purchase price
is usedto adjust for principal outstanding.
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Annuity OptionsOption 1
(No Return of Purchase Price)
Option 2(Return of Purchase Price)
Borrower benefits
Life Time Annuity +Bonus (subject to
terms)
Life Time Annuity + Bonus (subject to terms)
On Borrowers Death…
Annuity Payment ceases.Annuity Payment ceases and
Purchase Price Returned
Joint Borrowers
Covers Joint borrowers separately. Both can obtain separate Life time Annuities.
Covers both simultaneously. On death of primary borrower, co-borrower automatically eligible for receiving Annuity
Prepayment of Loan
Possible without prepayment levy. Annuity will continue to flow till borrower's demise.
Possible without prepayment levy. Annuity will continue to flow till borrower's demise.
Servicing FeesMaximum 1.50% p.a. of Principal Outstanding
Maximum 1.00% p.a. of Principal Outstanding
TaxationYes. As applicable under Section 56 of Income Tax Act, 1961
RML enabled ANNUITIES: COMPARISON
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RML (2007) RML enabled Annuity
Eligibility •House Owning Senior Citizens 60+ yrs and Spouse 55+ yrs
Same.
Security Mortgage of House Property. Same.
Nature of Payment • Periodic payments / Lump sum
Same.
Loan Repayment Not during Borrower’s Lifetime
Same.
Recourse No Negative Equity Guarantee
Same.
Loan Settlement • Sale of House. Heirs can repay.
Same.
Periodic Payment Tenure
Maximum 20 years. Payments for Life time.
Certainty of Payments
Not certain. May stop if house value drops below loan O/s.
Assured Payments for lifetime.
Prepayment of Loan •Allowed. Mortgage Released.• Loan payment Stops.
•Allowed. Mortgage Released.•Annuity payment Continues.
Servicing Fees No fees. Banks/HFCs to levy fees.
Revaluation and Loan Adjustment
Atleast once in 5 years.Possible to increase/reduce loan.
Atleast once in 5 years. Possible to increase loan.
Reverse Mortgage Redemption Reserve
Not Available RMRR option to Banks/HFCs.
RML AND RMLeA: A COMPARISON
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ParticularsNet Monthly RMLeA*
For Life time
AgeProperty
Value LTV Option-1 Option-2
60 Rs.50,00,000 60%Rs.17,295
p.m Rs.10,955 p.m
65 Rs.50,00,000 60%Rs.19.935
p.m Rs.11,335 p.m70 Rs.50,00,000 60% Rs.24080 p.m Rs.12095 p.m
75 Rs.50,00,000 70%Rs.35,830
p.m Rs.16,555 p.m
80 Rs.50,00,000 75%Rs.51,597
p.m Rs.24,941 p.m
RMLeA - INDICATIVE AMOUNTS
RML (2007)
upto 20 yrs
Rs.4214 p.m
Rs.4214 p.m
Rs.4214 p.m
Rs.4916 p.m
Rs.5267 p.m
In addition to the above payments, Bonus payable under certain circumstancesAnnuity payments are subject to tax in the hands of Senior CitizensRML payments exempt from tax under Section 10(43) of the IT Act
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Senior Citizen Counseling: Counseling Centers opened in:
Chandigarh New Delhi (2 Centers) Hyderabad Kolkata Bengaluru Chennai
NHB’s PROMOTIONAL ROLE
Prudential Norms for RML: Working Group constituted by RBI
Tax exemption on RMLeA: NHB engaging attention of CBDT
Capacity Building of Banks and HFCs: Training, Seminars
Product Research for Value Additions
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NHB’s RML Counseling Centers: A Glimpse
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Please visit www.nhb.org.in for details.
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