Innovative Financial Design: Reverse Mortgages for Senior Citizens

It’s my belief that most .gov innovations go unnoticed and the role of the government as an innovator is overlooked by many in the Social Entrepreneurship space. Of course, here at ThinkChange India, we capture pattern-breaking social change ideas wherever they happen – .com, .org and yes even .gov.

The Indian Finance Ministry in the last year’s union budget proposed the introduction of a new financial product for senior citizens called ‘Reverse Mortgages’ (Via MeriNews):

A property worth Rs 1 crore may fetch you Rs 22,500 per month for the
next 15 years. Reverse mortgage provides security in old age to people
who are ‘house rich’ and ‘cash poor’.

In the case of conventional mortgage, you take a loan from a bank and
purchase property. While in the case of reverse mortgage, you have a
property and take a loan against that property. So the starting point
of the transaction in the case of ‘reverse mortgage’ is the opposite or
reverse of conventional mortgage, and hence the name.

Why is this important in the context of providing social security for senior citizens in India? The coverage on pensions is still very limited in the country. As the article says:

Reverse mortgage is a major initiative for providing social security to
senior citizens. It is all the more useful for people who do not
receive pension or are unable to purchase annuity plans. Burgeoning
pension liabilities have compelled the government to introduce the New
Pension Scheme.

What’s interesting to me is what the proposal also captures in the social landscape. As we climb the ladder of progress, taking care of one’s aging parents becomes less of the priority for many in the younger generation. While most parents build an asset (like a house) and expect to pass it on to their siblings, they also expect their sons and daughters to support them (financially and otherwise) during post-retirement. Reverse Mortgages add a twist to the story, where seniors can leverage on their hard earned asset, be less dependent on their children, and in my opinion lead a more dignified life.

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