Skip to main content

Senior Citizens - Income from your home

Before opting for a reverse mortgage, run a check list on these downsides and decide if it's worth it

The mortgagor should opt for monthly payment instead of the lump sum. For a `1 crore property, the lump sum would be `21.6 lakh, whereas the total monthly instalments add up to `40.5 lakh over 15 years

Pushkar Mehta, 60, is looking forward to a stress-free retired life. His three children are well settled and there are no loans left to be repaid. The only problem is that his retirement kitty has been reduced to provident funds (including Public Provident Fund), gratuity and a few pension plans purchased in the last few years.

What gives him comfort is that he can unlock the value of his house through the reverse mortgage route.

When he first learnt about the 'Reverse Mortgage Loan (RML)' the concept of receiving a monthly pension (annuity) by mortgaging your own home - it sounded like areal boon. But, with his house being the only asset, he wants to be doubly sure if there are any specific things he should look at before committing to this scheme.Here's alook at some of these:

SACRIFICING HOME OWNERSHIP

In a typical RML, a home-owner (also called mortgagor) borrows against his home in return for a lump sum or monthly annuities from the lender. Those, who are emotionally attached to their property need to evaluate if going in for an RML is worth sacrificing ownership. Once signed, the lender institution will be the rightful owner, once the owner/spouse passes away.

COSTS INVOLVED

Despite losing ownership, the mortgagor is still responsible and liable for the municipal taxes, insurance and maintenance charges attached to the home. One also has to pay costs associated with such a transaction, such as obtaining title verification, search report from the bank's empanelled advocate and compulsorily executing a will in favour of spouse only. All these costs add to the expense of the mortgagor. Remember, these costs will eat into the income from the bank/financial institution.

NO ESTATE PLANNING

Though the property goes to the lender only after the last surviving borrower dies or opts to sell the home, the mortgagor cannot pass it on to any of his/her legal heir. Consequently, legal heirs can no longer claim rights to ancestral homes that have been in the family for generations. If he wants to retain it, he needs to repay the loan to the bank. This could be quite expensive sometimes and out of the reach of the legal heir.

HIGHER INTEREST RATES

RMLs are actually rising-debt loans, since the interest accumulates every month and keeps compounding with time. Say, the loan amount is restricted to 90 per cent of the value of the property, wherein the loan amount will include interest till maturity. For a loan amount of `1crore (with a property value of `1.11 crore) at today's rates, the mortgagor is entitled to receive a monthly payment of 22,500 for 15 years -totalling `40,50,000 over the tenure of 15 years. If the mortgagor opts for a lump sum payment, he gets approximately `21.6 lakh only. Banks justify the high interest cost as they don't earn any interest or income till the loan becomes due or the home is sold.

LIMITED MONEY RECEIVED

The mortgagor is not allowed a second mortgage or any other loan on the same property. So, any reckless spending of this money would mean a double hit -- losing the money and your property. This money should not be used for speculative, trading or business purposes.

A reverse mortgage can be a wonderful solution for those with no dependants. It makes sense to look for cheaper alternatives to borrow money than doing away with your home. Better still, ensure you start working towards the necessary retirement corpus while still young and actively employed.
 

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

Term insurance

Term insurance may not be the most-marketed product by life cos, but it’s a must-have in today’s risk-prone lifestyle WHEN was the last time your insurance agent sold a term plan to you? It’s not a very popular policy among agents, as their commission in absolute terms is low because of the low-premium. Just as agents have their self interests in mind while selling, you need to make your own decision about your insurance needs, which are unique to your family. COST ADVANTAGE A term plan is pure protection. It is the cheapest type of life insurance policy. But what you see might not be what you get, most insurers have a range of health parameters for standard rates. If any of your health parameters — weight, blood pressure for instance fall outside this range, you will pay more. For some companies, the standard range is very narrow. EARLY BIRD GAINS A 30-year-old will pay 15% more premium than a 25-year-old. At 40, the premium is double of what is applicable for a 25-year old, points...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

Reliance Life Insurance company introduces 17 ULIPs

Reliance Life Insurance company has announced the launch 17 unit linked insurance plans (Ulip). The new range of Ulips encompasses several categories including child plans, pension, protection, savings and investment, which are available in two versions — basic plan with tenure of over 15 years and another with a 10-year-term. According to an official release, these Ulips are primarily targeted at customers paying a premium of over Rs 10,000. All these schemes come with features such as capital guarantee, loyalty additions, higher internal rate of return and several fund options. The plans also offer riders, including payment of lump sum on diagnosis of specified critical illnesses, surgeries and additional life cover. Policyholders have the option of choosing between automatic asset allocation, systematic transfer plan and return shield options. Recently, the company launched two traditional insurance plans — Reliance Jan Samriddhi plan (RJSP) and Reliance Traditional Super InvestAssu...
Read more

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...
Read more

L&T Tax Advantage

Best SIP Funds to Invest Online   The fund follows a growth approach to investing in quality stocks that have a large-cap tilt This large-cap tilted ELSS has fared consistently and fared better than its benchmark by posting a higher margin of outperformance. The fund follows a growth approach to investing in quality stocks that have a large-cap tilt, which is evident in its portfolio. The portfolio is further well diversified across market capitalisation and sectors with over 60 stocks finding a place in it. The upside with this fund is the fact that it has witnessed both down and up cycles of the market to come across as a winner in the long run. Do not doubt the fund based on its size and a few mediocre years of performance, because when analysing its rolling three year returns, the fund's performance stands out to qualify as a must have ELSS in one's portfolio. Stay invested through the lock-in and there are chances of benefiting from returns as well as tax savings will prov...
Read more
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