BoB plans reverse mortgage loans

Bank of Baroda (BoB) is planning to launch reverse mortgage loans (RML) for senior citizens. The bank will make periodic payments to borrowers (persons above 60 years) to supplement their pension income.

This (RML) is a new product concept and bank is working on details and expect the product to be ready in three months, chairman and managing director Anil Khandelwal said after launching electronic bill payment service at core banking branches.

The National Housing Bank, the nodal agency for mortgage finance, has issued draft guidelines on RMLs and the public sector bank has had initial discussions with them, another senior BoB official said. BoB's home loan portfolio is about Rs 6,000 crore. The home loan portfolio has grown substantially only in the last three years.

Besides, BoB, Punjab National Bank and Corporation bank are working to offer this product. LIC will provide its expertise on mortgage-related activities in the case of reverse mortgage, Corporation Bank will focus on the retail part of it.

According to NHB draft norms, reverse mortgage seeks to monetise the house as an asset. The senior citizen borrower mortgages the house property to a lender. The lender then makes periodic payments to the borrower during the lifetime.

The borrower (senior citizen) is not required to service the loan during his lifetime and therefore does not make monthly repayments of principal and interest to the lender. The loan is repaid along with accumulated interest by selling the property. This happens either on the borrower's death or when the borrower leaves the house property permanently.

The borrower has also option to repay or prepay the loan with accumulated interest and have the mortgage released without resorting to sale of the property, NHB said.