Why is Reverse Mortgage Unpopular in India?

Reverse Mortgage Loan (RML) forayed into the Indian market in 2007. However, even after a decade, it has failed to gain a considerable traction. The majority of bankers, RML counselors, planners, etc. are of the unanimous opinion that there is a little demand for this product that’s fairly popular overseas. But why is that? Before we get to that, let’s learn about the product itself.

What’s Reverse Mortgage? How does it Work?

Image Source

As the name suggests, a reverse mortgage is the opposite of mortgage. So, just like you take a mortgage to buy a house by offering the same as collateral or security, in reverse mortgage, you use the property to earn fixed monthly payments for a certain period. After this period is over, the property is handed over to the lender.

A reverse mortgage is typically availed by the senior citizens of 60 years and above who are rich in assets but not in cash. So, by offering their property for a reverse mortgage, they are able to enjoy a decent amount of earning in their twilight years, akin to a pension, and let the bank take the possession of their property after they have passed away.

Why is Reverse Mortgage is Unpopular in India?

Experts cite two main reasons behind the lack of interest in a reverse mortgage in India:

• Emotional attachment to property: In India, there is a tendency for the people to develop an emotional attachment to their property. Many people spend all of their life’s savings into building their “dream homes” and so they don’t want to give it away for any reason.
• Lack of understanding and awareness: Unlike other countries like US and UK, where reverse mortgage is quite popular and offered by a variety of financial institutions, in India few people know about it. It doesn’t help that it’s also offered by a limited number of firms only.

Industry stakeholders say that people find reverse mortgage complicated, unlike a traditional home loan. So, they prefer alternatives instead. For instance, a large number of people simply sell their homes and move to a smaller home. They use the proceeds from the sale for their day-to-day expenses.