Reverse Mortgage – The Emerging Financial Product – An Evaluation

Abstract

The current concern for the Indian Government is the management of the growing segment of aged population in the economy. The transformation of the pension concept from the ‘defined return’ criteria to defined contribution criteria is one more factor contributing to the area of elderly health care. The limitations of the existing financial products in taking care of the senior level population have added scope for designing etirement and annuity based innovative financial products. ‘Reverse Mortgage’ which is already in vogue in Western welfare oriented economies, if introduced in India will be an appropriate financial product. The paper aims to discuss the pros and cons of the product. The scope of the paper is to provide an overall valuation of this emerging product from the economic and social standpoint. The possible negative factors and tax implications are also projected in the paper. The mechanisms of the product and the underlying conditions are also discussed in the paper. The international experiences are also quoted. The reasons for the still lukewarm attitudes for the product and possible tax implications are also briefly debated in the paper.