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

April 20, 2010

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 choice.

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 payments.
                                                                                                                      
“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 evaluations.

“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 stated.

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. — Amritha Pillay