In the Union Budget 2007-08, a proposal to introduce 'Reverse Mortgages' was put forth. In a regular mortgage, a borrower mortgages his new/existing house with the lender in return for the loan amount (which in turn he uses to finance the property); the same is charged at a particular interest rate and runs over a predetermined tenure. The borrower then has to repay the loan amount in the form of EMIs , which comprise of both principal and interest amounts. The property is utilised as a security to cover the risk of default on the borrower's part.
In the reverse mortgage, senior citizens (borrowers), who own a house property, but do not have regular income, can mortgage the same with the lender (a scheduled bank or a housing finance company-HFC). In return, the lender makes periodic payment to the borrowers during their lifetime. Inspite of mortgaging the house property, the borrower can continue to stay in it during his entire life span and continue to receive regular flows of income from the lender as well. Also, since the borrower doesn't have to service the loan, he need not bother about repaying the 'borrowed amount' to the lender.
To read more, http://in.loans.yahoo.com/
Veena Vishwanathan
Globsyn Business School
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