Reverse Mortgage Loan- Make your asset work for you!
Retiring without proper financial security and a regular income flow can make old age miserable. The soaring inflation, rising costs of basic amenities such as food and medical care, make it very important to have a regular stream of income at this critical stage in life. In India, most of the aged population either depend on their children to financially support them, their savings or retirement income which may not be enough to maintain their lifestyle. However there are a large number of aged people who in spite of having a large asset base do not have a regular source of income post retirement.
Having said that, wouldn’t an ideal situation be to make your assets provide you a regular income flow? Well that’s exactly what a reverse mortgage loan does.
Reverse Mortgage Loan is a scheme developed to assist the senior citizens. You can mortgage your house property for a payment from the lender and also occupy the house as long as you live. Instead of you making monthly payments to a lender, as with a regular loan, the lender makes payments to you.
Reverse mortgage is a new concept in India has been a very popular in the west. This scheme, after its introduction in the Budget 2007-08, is being regulated by National Housing Bank, the apex body on housing finance in India. Most leading lending institutions like State Bank of India, Punjab National Bank, Bank of Baroda, Central Bank of India, Union Bank of India, LlC Housing Finance, Indian Bank, etc. are now offering their own reverse mortgage products.
How it works ?
In reverse mortgage loan, a senior citizen, i.e. above the age of 60, can avail of payments of a decided loan amount from a bank or house finance company, against the mortgage of a self owned residential property. You can simply approach a bank or institution that provides this facility and fill out the necessary forms and provide them the required financial information and relevant documents like the official property papers etc. The loan amount is decided after considering various factors such as the appraised value of the house, the interest rate, the age of the owner etc. You can opt to receive a monthly, quarterly, annual or lump sum payment, or any combination as agreed with the lender. Once the tenure of the loan is over the payments will cease, however you can still occupy the house till you are alive. The loan becomes due when the last surviving owner dies or permanently moves out of the residential property. In this case the lender first gives the legal heirs an option to settle the loan, however if they are unable to do so the house is put up for sale. After the loan amount along with accumulated interest is recovered from the sale proceeds, the surplus amount if any is then given back to you or your legal heirs/beneficiary.
We at Fpguru.com suggest you bear in mind a few important features before you consider to avail of the Reverse Mortgage Loan.
Only Indian citizens, above 60 years of age, are eligible for reverse mortgage loan.
The maximum tenure of the loan cannot exceed 20 years. However even after the expiry of the period, you can continue to live in the property and the loan will be repaid only after the death of the owners.
The value of the residential property is usually appraised by the lender and a team of experts and is re valued at periodic intervals, usually 5 years.
Married couples can also borrow jointly provided one of them is above 60 years of age and other not below 55 years of age. In the event of death, the surviving spouse can continue to occupy the house till his/her death.
The lump sum amount or periodic payments received on reverse mortgage loan are not taxable. Only the final sale of the house will attract capital gains tax.
The loan can be prepaid at any time during the tenure of the loan, typically without any prepayment charges.
If the sales proceeds of the house is less than the accrued principal and interest then lender takes the hit. Thus your liability is restricted to the net realizable value of the house, subject to fulfillment of the agreed terms and conditions.
The lender and you shall enter into a detailed loan agreement setting clearly stating the features of the loan, other terms and conditions and other necessary provisions.
However it is your duty to pay all the expenses such as taxes, electricity charges, water charges and also maintain the house in a good sale-able condition.
Conclusion
This product has been very successful worldwide; however it is still to step up in the India, primarily because the idea of selling their house does not appeal to Indians. We tend to be emotionally attached to our ancestral property and usually would like to pass it on to the next generation. However with the emerging concept of nuclear families, people are now realizing the importance of being financially independent.
A house is probably the most valuable asset one owns, as it such a large investment it most often leads to insufficient savings for retirement. Thus the reverse mortgage loan is an ideal retirement instrument and is a great way to monetize the value of your house without actually selling it.
Go ahead and make your asset work for your retirement !
By Riddhi Agarwal
The writer is working with Fpguru.com
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Comments
had no idea about this kind of a loan !!
thank you Fpguru for the info
Thankyou for giving us the information.
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