REVERSE MORTGAGE – Why depend on anyone when you can unleash the latent power of your property to live honourably and happily…
The bulk of the savings for the average Indian are typically locked away in a house or other property at the time of retirement, and in case of requirement it cannot be en-cashed except by selling the home or moving out. This is where reverse mortgage comes as an answer.
Taking the usual mortgage loans in lieu of your home as a security will not be feasible in the age above 50 as the repayment of the loan is not feasible. The Banks and Financial Institutions also won't be of any help in case of no income source. This is where the house property proves as an asset and brings in reverse mortgage that allows you to be the home owner as long as you live. Home ownership is an area most Indians are sensitive about and reverse mortgage entitles you your house throughout your remaining life.
Let’s understand what REVERSE MORTGAGE is through a series of short questions.
Reverse Mortgage: What is it?
A reverse mortgage (or lifetime mortgage) is a loan available to senior citizens. Reverse mortgage, as its name suggests, is exactly opposite of a typical mortgage, such as a home loan.
How does it work?
In a typical mortgage, you borrow money in lump sum right at the beginning and then pay it back over a period of time using Equated Monthly Instalments (EMIs).
In reverse mortgage, you pledge a property you already own (with no existing loan outstanding against it). The bank, in turn, gives you a series of cash-flows for a fixed tenure. These can be thought of as reverse EMIs.
The specific format National Housing Board (the facilitator for housing finance in India) is promoting is one in which, the tenure is 15 years and the owner of the house and his/her spouse continue to live in the house till their death -- which can occur later than the tenure of the reverse mortgage.
Simply put, any senior citizen, opting for reverse mortgage will get annuity (the reverse EMI) from the bank for 15 years. After that, the annuity payments stop. However, they can continue to live in the house.
What are the features of this loan?
The draft guidelines of reverse mortgage in India prepared by the Reserve Bank of India have the following features:
Any house owner over 60 years of age is eligible for a reverse mortgage.
The maximum loan is up to 60 per cent of the value of the residential property.
The maximum period of property mortgage is 15 years with a bank or HFC (housing finance company).
The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
The revaluation of the property has to be undertaken by the bank or HFC once every 5 years.
The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.
How is the loan paid?
With a reverse home mortgage, no payments are made during the life of the borrower(s). Since no payments are made during the term of the reverse home mortgage loan, the loan balance rises over time.
In most areas where appreciation is good, the value of the home grows at a much faster rate than the loan balance. Therefore, the remaining equity continues to grow.
When the last borrower passes, or it is decided to sell the home and move, the loan becomes due. The ownership of the home is then passed to the estate or directed by a living will or will to the beneficiaries.
The beneficiaries now own the home and have to sell the home or pay off the loan. If the home is sold, the reverse home mortgage lender is paid off and the beneficiaries keep the remaining equity of the home.
What happens after the death of one or both of the spouses?
If one of the spouses dies, the other can still continue living in the house. If both die, the bank will give their heirs two options -- settle the overall outstanding loan and retain the house, or the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs.
How much of an annuity income can my house generate using reverse mortgage?
The banks have so far not indicated the interest rates. However, we can safely assume that it will not exceed the interest rates used for loan against property -- which is currently in the region of 12 per cent to 14 per cent.
What is a loan to value ratio?
Loan to value ratio means the percentage of loan that you will get for the value of the property that you pledge. The typical rate loan to value ratio is 60 per cent.
So, for e.g., if you pledge a property worth Rs 60 lakh (Rs 6 million), then the loan amount that you can get is Rs 36 lakh (Rs 3.6 million).
Does a person's age affect the amount of annuity paid?
It certainly does. Higher the age, higher the annuity! Everything else remains the same.
So, if you are 60+ and Salaried Retired individual there is a strong case for you to avail Reverse Mortgage in which case you are free to contact me.
Let me give you a brief introduction about myself.
I am Shailendr K. Ahluwalia and basically I am a Banker with about 30 years of active and vibrant Retail Banking career on my back… Having worked with many Nationalised, Old Private Sector Banks and New Private Banks at various levels I recently quit Banking, voluntarily, from India’s leading Private Bank at Senior position, refusing to tow stereo-typed working for another 9 years before getting retired and with a view to undertake my own chosen path to attain my goals including the social responsibilities I carry on my shoulders.
Now the above experience comes very handy to me in analysing different banking options available around us and keeping in view the requirements of my client, the most suitable option can be suggested to her/him. I have options of Commercial Banks operating in India along with few NBFCs offering property related loans or mortgage loans.
I invite you to be my client and I will utilise the opportunity to guide you to the best of knowledge and experience for your benefit.
Shailendr Ahluwalia
“When you live for a strong purpose,
Then…
Hard work isn’t an option…
It’s a necessity.”
M: 9872651115, 9356851115
