In terms of financial jargon the definition of
reverse mortgage can be defined as "an agreement by which a
home owner borrows against the equity in his home and receives
regular tax free payments from the lender.'' Here equity is the
value of the property over and above any mortgage or other
liabilities relating to it. Thus reverse mortgage is a contract
between a homeowner and a financier which enables the homeowner to
receive a stream of income, especially in retirement, from the
future realizable value of the home.
The genesis of reverse mortgage can be traced to developed
countries where, due to higher standards of living, better access
to health care and higher life expectancy, people above 65 years
constitute a major chunk of the population. The ever-rising cost
of pensions and health care for the old led insurance companies to
introduce the reverse mortgage in the US, the UK and Australia.
In reverse mortgage, the capital value of a home is converted into
an annuity over the homeowner's lifetime. The annuity may be
designed to rise, fall or stay steady over the lifetime. The
period of such payments is not `a specified number of years,' but
`the remaining life time of the owner (and his/her spouse) of the
property.' Simply put, reverse mortgage is a life annuity.
Thus by investing in a house through a housing loan and repaying
the loan during his working life time, one will not only have a
roof over his head throughout his life time, but also secure a
joint life pension, that keeps in step with inflation, after
retirement. Seen in this perspective, reverse mortgage would
motivate people to build or buy their homes and, thereby, save for
their retirement voluntarily. Hence reverse mortgage results in a
double-whammy: it spurs economic activity and provides economic
Dewan Housing Finance Corporation Limited, India's second-largest
private housing finance company, has launched a reverse mortgage
scheme called 'Saksham' that is targeted at retired senior
citizens above 60 years of age.