Monday, April 26, 2010

Senior citizens invested in a reverse mortgage can switch over to a new bank

Senior citizens invested in a reverse mortgage can switch over to a new bank
April 20, 2010 04:12 PM |
Amritha Pillay

Senior citizens who have gone in for reverse mortgages, can approach
any bank that offers an improved, amended product—for a switchover to
the new reverse mortgage model—which offers higher monthly returns

With competition expected to grow in the reverse mortgage segment,
(see here), senior citizens will have more reasons to rejoice. While
new customers will be able to choose from a variety of products, the
existing 6,400 customers who have gone in for reverse mortgage schemes
from various banks will be able to switch over to a new bank of their

According to National Housing Bank (NHB) officials, existing customers
would be allowed to change their bank (the bank which has currently
issued a loan on the reverse mortgage model), if they wish to do so.

"The earlier loans that have been sanctioned to the senior citizens by
the banks were basically based on regular loan schemes. They have been
allocated a certain amount, based on which they are given payments on
a monthly basis. If a person has taken a loan in 2008 or 2009, he
would have availed a maximum of one year or two years of monthly

"The balance would still be left with the bank, so he can utilise the
unutilised balance payment amount, for the purpose of the new loan—he
can simply convert that into a second loan," said V Sambamurthy,
regional manager, NHB.

In the current scenario, wherein only Central Bank of India (CBI) is
providing a better product compared to the original one launched in
2007, the existing 6,400 customers can approach CBI to buy out their
loans, in order to switch over to the new model.

If the existing customer is a customer with CBI itself, there would be
minimal issues and the customer can switch to the new product.
However, if the senior citizen has his reverse mortgage loan linked to
another bank, he will have to approach the CBI to buy out the loan.

"The only bank which is offering this (a new product) at present is
CBI. If the loan has been taken from another bank, CBI can always buy
out the loan," added the official.

The choice lies with the customer whether he wishes to switch to
another bank or not. However, the ultimate discretion lies with CBI or
will lie with any other bank that may offer a competitive product in
the future—whether to buy the loan or not—depending on certain

"They (the existing customers) can work out a deal between the two
banks. The borrower can express the desire and approach CBI to buy out
the loan. However, the ultimate decision will lie with CBI," Mr
Sambamurthy explained.

Such switchovers will not only allow the customer to avail of better
products, but also allows scope for a new property evaluation.

"Probably, in this two-year period, the house value may also have gone
up. A switchover could also help options like devaluation, if
necessary or if they (the senior citizens) so desire," the official

Since its launch, around 6,400 customers have availed the reverse
mortgage schemes under the original model. A total amount of around
Rs1,200 crore has been sanctioned. The new model allows better monthly
payments, (see here).

Thus, a switchover option will prove beneficial to existing customers.
This switchover will be possible only when CBI starts the new scheme,
which is right now on hold because of some tax-related issues.

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