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

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...
Read more

JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund

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 JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund    The new fund offer opens for subscription on 16 th June and closes on 30 th June. JP Morgan Mutual Fund today announced the launch of its open end fund of fund called Emerging Markets Opportunities Equity Offshore Fund. The fund will invest in an aggressively managed portfolio of emerging market companies in the underlying fund - JPMorgan Funds - Emerging Markets Opportunities Fund, says a JP Morgan press release. Noriko Kuroki, Client Portfolio Manager, Global Emerging Markets Team (Singapore), JPMAM said, "Emerging markets have been out of favour for several years, as growth decelerated and earnings struggled. However, in a world of globalisation, we believe that EM will eventually re-couple with DM, leading to the long-aw...
Read more

Nifty F&O

  1. What is a straddle? A strategy using Nifty options usually before a major event or when one is uncertain of market direction. Comprises purchase of a Nifty call and put option of the same strike price. Usually strikes are purchased closer to the level of the underlying index. 2. What is better ­ buying or selling a straddle? It depends.Implied volatili ty of options, or near-term expectations of price swings in an un derlier like Nifty , usually peaks before an event and falls when the outcome plays out ­ like Infy re sults in past years. However, once the event plays out, a sharp rise or fall in Nifty could result in price of the straddle rising ­ benefiting buy ers. But, normally , those who sell or write options charge hefty premiums from buyers in the hope that fall in volatility would ensure the options end out-of-the-money, hurting buyers. 3. So, do straddle sellers end up winning most of the time? Yes. That's invariably the case when market volatility is trending on the...
Read more

UTI Equity Fund Invest Online

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   UTI Equity Fund   Invest Online UTI Equity is a large cap-oriented fund with assets under management worth Rs. 2,269 crore (as on June 30, 2013). The fund was originally launched in May 1992 as UTI Mastergain and is benchmarked against S&P BSE 100. A couple of years back the name of the fund was changed to UTI Equity Fund and many of the smaller funds of UTI were merged into this fund. Performance The fund has outperformed its benchmark as well as the equity diversified category average in the last one-, three- and five-year periods. It has repeated the same in 2013 (as on May 31). Since its inception the fund has delivered an impressive 26 per cent compounded annual growth rate which is superior to its benchmark performance in the same period. Y...
Read more

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...
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