The Reverse Mortgage A FINANCIAL SOLUTION TO ELDERS By Nandhavanam www.icaremylife.com
Concept of Reverse Mortgage During the earning period an individual s major earnings goes towards housing loan repayment. In turn, after their retirement, they are not having sufficient cash flow to meet out their day-to-day expenses, medical expenses etc. Also they cannot sell the house and move to another house for rent for many reasons. Now, the concept of reverse mortgage helps such senior owners to generate fixed cash flow (income) in their retired living life to meet out their cash flows. Before getting deeper into Reverse Mortgage, Read the difference between Normal Housing Loan and Reverse Mortgage (Loan): Housing Loan (Mortgage) Loan given to earning person who is less than the age of 58/60 for the purpose of constructing a house Loan is disbursed upfront and then recovery begins as EMI (Equated Monthly Installments) Loan is exclusive of interest Interest paid and principal repayment has income tax benefits Failure to repay EMI will result in forfeiting the property by housing loan companies Target repayment value cannot be ascertained since the rate of interest varies from time to time Valuation done at the time of loan sanction and the same is final till the loan closure Reverse Mortgage (Seniors Loan against House) Loan given to a non-earning senior, aged above 60, against their residential house property Amount is disbursed every month and cumulative value along with accrued interest would become the loan amount Loan is inclusive of Interest No income tax benefit since the receipt of principal and interest thereon is neither an income nor an expenditure since both contributes the loan No repayment obligation till the life time of the elder including the spouse Target loan component is fixed upfront and the monthly withdrawal vary accordingly Valuation is done once in 5 years and the loan target value is re-written based on the revised valuation
Lesser the age - Lesser the EMI Lesser the age - Lesser the monthly withdrawal Lesser the age - Longer the Term More the age Lesser the term Borrower need not stay in the same property Part or lump sum payment is possible Repayment is mandatory every month One should forego their house property if the loan is not repaid Loan decreases every month on payments Monthly repayment is the only option Processing Fee need to be paid separately On property value upto 80% is financed subject to repayment capacity If the borrower has sufficient repayment capacity, there is no restriction on the maximum amount to be financed Borrower should stay in the mortgaged property Part or lump sum withdrawal is possible Repayment is not mandatory till the life time of the elder The senior can stay in the same house even after the end of loan tenure Loan increased every month on drawls Monthly /Quarterly /Half-yearly / Annual withdrawal is possible. The processing fee is included in the loan. No need to pay separately. On property value upto 60% is financed and no repayment capacity is required Maximum loan amount is restricted to Rupees INR 1 Crore How it Works?... Check it Out!!!... What is needed? A debt free residential house in good condition which can be used for a period of at-least next 20 years standing in the name of the borrower who should be more than 60 years of age. Spouse who is a joint owner of the borrower if less than 60 years (but not less than 55 years) of age can also join the scheme. Loan value The 60% of the property value with a maximum limit of INR 1 Crore. The property will be revalued once in every 5 years and the loan may be reset based on the revised valuation.
Legal requirements Eligible borrowers should own their property with free and clear title, well maintained livable unit or flat, by paying government taxes in time, remaining usable life of the property be minimum 20 years, availability of all the legal documents for mortgage etc., are the requirements on legal related aspects Rate of Interest Fixed and floating rate of interest are charged as opted by such borrower Loan Tenure Range between 5 to 20 years depending on the age of the borrower. Lesser the age - Longer the term. Disbursement One can either go for fixed cash drawing route or lump sum cash in advance and periodical monthly cash withdrawal method. This may be more helpful to the seniors to spend some money for their major medical treatment or to meet out their debts etc. There after the Senior will receive equal monthly payment for their day-to-day living for a fixed period of months selected by him. Withdrawal Amount Per Month More the age - More the withdrawal. Since the livable period of a senior is less if they are more aged this system might prevail. Existing Housing Loan Absorption If the property is already mortgaged with a housing loan company and any outstanding loan be taken over by reverse mortgaging companies and from that point onwards the borrower is free from housing loan repayment obligation Property Occupancy The borrower should occupy the property as his/her primary residing house and no such loan can be extended on any other property of the same borrower Maintenance of the Property The borrower should maintain the property in good and livable condition and normal wear and tear should also be managed by the borrower. They should also discharge all the government outgoes.
Recovery of Mortgage Loan During the tenure of the loan period a borrower may partly or fully close the loan and no preclosure charges are levied for that loan Forced End Upon death of a borrower or if joint borrowers upon death of both the borrower If the borrower moves out of the house permanently or the borrower does not occupy the property for more than 12 months continuously with-out proper intimation or justification to the lender Legal heirs If the borrower dies during the loan tenure, the legal heirs if any, may settle the loan with the bank / financial institutions and take the property from the lender (Or) The property will be normally be sold by the borrower or the borrower's estate to pay-off the outstanding balance on the mortgage. Till the loan is closed no legal heir can claim the property s ownership. They can also close the loan after the life time of the borrower and transfer the property in their name Continued living The borrower and his/her spouse can continue to live in the same property even after the completion of loan tenure and they cannot be vacated for non-payment of loan. Advantages of Reverse Mortgage Hassle free money flow management after the retired life Threat against elders by anti-social elements on property related matters are avoided since it is mortgaged to lender(banker) Legal heirs cannot claim any settlement, or they cannot give unnecessary inconvenience on property related matter and they can only take away the property only after settling the loan with the bank Any emergency medical care can be managed by the senior without financial trouble
This not only takes care of the borrower but also his/her spouse Lenders (Banks) Offer Reverse Mortgage: The major reverse mortgage lenders in India or the Banks and Financial Institutions providing reverse mortgage in India: National Housing Bank Dewan Housing Finance Limited State Bank of India Punjab National Bank Indian Bank Union Bank of India IDBI Bank LIC Housing Finance Limited Andhra Bank Corporation Bank Canara Bank Bank of Baroda Central Bank of India Illustration for Reverse Mortgage: Mr. X aged 61 years of age having 1000 sq.ft of residential flat at Chennai, valuing 25 lakhs can go for a reverse mortgage loan as in below: Term 5 years, 60% Value of the Property 15 Lakhs, Rate of Interest 12%.
To Conclude No doubt in elderly living period money is the vital strength to meet out everything. However, the condition put forth by the lender forcing the borrower to use the house as their primarily living house does not cover the option of leading their life in Assisted Living Facilities. Mobility, Day to day Medical Care, Periodical Medical Checkups, Timely Food, Secured Accommodation etc., are highly provided in Elderly Care Centers and Assisted Living Centers at competitive cost within campus, makes the elders life highly peaceful and secured. Instead the lender can also rent out such property and realize the income on behalf of the senior by which their monthly income not only goes up but also their personal life care and living standards are kept in higher levels.