Skip to main content

See how Reverse mortgage can generate regular income for you...

Senior citizens without any steady income can use this scheme

NO REGULAR income, ailing health coupled with no or inadequate savings pose a serious risk to senior citizens. Senior citizens need a regular stream of income to address their financial needs. Seniors with no other option can consider reverse mortgage scheme offered by banks and housing finance companies. However, a reverse mortgage product is risky as it guarantees income only up to 20 years.

In a reverse mortgage scheme, the senior citizen has to mortgage his house with a bank or a housing finance company, which then makes periodic payments to him. The good part is that the senior citizen can continue to stay in his house till his death.

The senior citizen borrower is not required to service the loan during his lifetime and therefore does not have to make monthly repayments of principal and interest to the bank. The loan becomes due and payable only when the last surviving borrower dies or would like to sell the home. On the borrower's death or on the borrower leaving the house property permanently, the bank recovers the principal amount along with the accumulated interest from the proceeds received out of the sale of the property. The balance amount (if remaining) is passed on to his legal heirs. The borrower(s) will have option to prepay the loan at any time during the loan tenure. The heir of the senior citizen can also repay or prepay the loan with accumulated interest and have the mortgage released with out resorting to sale of the property.


Risks associated in a reverse mortgage loan: A senior official of National Housing Bank (NHB) said, A reverse mortgage product has risks. The bank stops making payments to senior citizens who survives the loan tenure. However, the bank cannot make him vacate the house. They have to wait till his death to recover the loan and the interest.


Therefore, we have introduced a second product called reverse mortgage annuity linked product where incase the senior citizen survives the loan tenure, then the insurance company provides him with income.

"So far it's only Star Union Dai-ichi Life insurance that is offering the reverse mortgage linked annuity product. Talks are on with many insurance companies and banks to join hands and launch this product," said the NHB official.

According to the guidelines set by NHB, banks are supposed to re-value the property mortgaged with them at least once in every five years. Thus, the periodic annuity amount would be revised based on the revaluation exercise. Based on the borrowers requirements, the payments can be on a monthly, quarterly or yearly basis. Incase of medical emergencies, the senior citizen can also avail a lumpsum amount that is usually restricted to 50 per cent of the loan amount. The rate of interest in a reverse mortgage product can be fixed or on floating rate basis.

There are three risks in a reverse mortgage product. The risk of the senior citizen living longer than the asset, high inflation eating into the income he earns and rate of interest rising in a floating rate regime.

Conditions for availing reverse mortgage loan: The person should be a senior citizen above 60 years of age and be the owner of a self-acquired, self-occupied residential property. Incase of a married couple the other person should not be below 55 years of age.


Determination of the loan amount: The bank appoints an independent third-party valuer to determine the market value of the residential property. Based on factors such as the age of the borrower and the prevalent interest rate, banks usually lends a maximum 50 per cent of the value of the property which is amortised for a maximum 20 years. However once the tenure of the loan is complete, periodic payments to the senior citizen is stopped.


All payments under reverse mortgage loans are exempted from income tax.
 

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

Stocks with a high dividend yield

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India) Stocks with a high-dividend yield can provide investors additional cash flow. More importantly, it is tax-free   With April 2011 just over, the 'earnings season' is well and truly here. This is the time most companies pay out a portion of their profits as dividends to shareholders. Since dividends are tax-free, they are an attractive income source with a select class of investors, who depend on these for additional cash flow. SIGNIFICANCE A company doing well and generating profits will usually be in a position to declare dividends regularly. Hence, a key parameter one should look at whilst investing in a stock is whether the company has a good dividend record. Typically, dividend yield stocks are large-caps and generally not capital-intensive. This is suggestive of the fact that the downside risk on...

Systematic withdrawal plan

  Start Systematic withdrawal plan Online Although an SWP gives you regular income and saves on taxes in the long term, you cannot open an SWP on a scheme where you have an ongoing SIP   iStockPhoto If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested to get regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens' Savings Scheme and monthly income plans (MIPs). A lesser known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is. WHAT IS SWP? Many of us would be familiar with a systematic investment plan (SIP ), where a corpus ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now