Imagine
a situation where you grow old and have managed to buy a house. However, you
could not save enough for your retirement. You certainly need money to manage your
day to day finances since you are retired and have no fixed source of income or
your income is not enough to meet your finances.
How does it work?
· Eligibility:
o A homeowner who is above 60 years of age is eligible for reverse mortgage loan.
o The property should be clear from encumbrances and should have clear title of the borrower.
o Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age.
· Repayment: No repayment is required as long as the borrower lives, Borrower should pay all taxes (e.g. municipal taxes) relating to the house and maintain the property as his primary residence.
· Factors behind loan: Generally speaking, the higher the age, higher the value of the home, the more money is available. The amount of loan is based on several factors:
o Borrower’s age,
o Value of the property,
o Current interest rates and
o The specific plan chosen.
· Valuation: The valuation of the residential property is done at periodic intervals and it shall be clearly specified to the borrowers upfront. The banks shall have the option to revise the periodic / lump sum amount at such frequency or intervals based on revaluation of property.
· Possession of the property: the Lender shall take possession of the property (or the loan shall become due and payable) only when the last surviving borrower dies or would like to sell the home, or permanently moves out.
· Legal Heir: On death of the home owner, the legal heirs have the choice of keeping or selling the house. If they decide to sell the house, the proceeds of the sale would be used to repay the mortgage, with the remainder going to the heirs.
· Tenure of Loan: As per the scheme formulated by National Housing Bank (NHB), the maximum period of the loan period is 15 years. The residual life of the property should be at least 20 years. Where the borrower lives longer than 15 years, periodic payments will not be made by lender. However, the borrower can continue to occupy.
· Income Tax: For tax purposes it has been clarified that reverse mortgage would not amount to “transfer”, and stream of revenue received by the senior citizen would not be “income”. Consequently, from FY 2008-09, the lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax.
Note- Reverse mortgage is a fixed interest discounted product in reverse. It does not take into account the changes in interest rates as yet.
Reverse
Mortgage is the answer for you. Reverse Mortgage is a type of mortgage
available to senior citizens in which a home-owner can borrow money against the
value of his/her home. No repayment of the mortgage (principal or interest) is
required until the borrower dies or the home is sold. After accounting for the
initial mortgage amount, the rate at which interest accrues, the length of the
loan and rate of home price appreciation, the transaction is structured so that
the loan amount will not exceed the value of the home over the life of the
loan. [1]
How does it work?
Reverse Mortgage in India
Realising
the potential benefits of Reverse Mortgage, the Union Budget 2007-08 announced
the introduction of 'reverse mortgage' by National Housing Board (NHB). NHB
issued the final operational guidelines for reverse mortgage loans (RMLs) on
May 31, 2007. Many banks have already introduced RMLs. Some of the
features/guidelines of Reverse Mortgage in India as formulated by RBI are:[2]· Eligibility:
o A homeowner who is above 60 years of age is eligible for reverse mortgage loan.
o The property should be clear from encumbrances and should have clear title of the borrower.
o Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age.
· Repayment: No repayment is required as long as the borrower lives, Borrower should pay all taxes (e.g. municipal taxes) relating to the house and maintain the property as his primary residence.
· Factors behind loan: Generally speaking, the higher the age, higher the value of the home, the more money is available. The amount of loan is based on several factors:
o Borrower’s age,
o Value of the property,
o Current interest rates and
o The specific plan chosen.
· Valuation: The valuation of the residential property is done at periodic intervals and it shall be clearly specified to the borrowers upfront. The banks shall have the option to revise the periodic / lump sum amount at such frequency or intervals based on revaluation of property.
· Possession of the property: the Lender shall take possession of the property (or the loan shall become due and payable) only when the last surviving borrower dies or would like to sell the home, or permanently moves out.
· Legal Heir: On death of the home owner, the legal heirs have the choice of keeping or selling the house. If they decide to sell the house, the proceeds of the sale would be used to repay the mortgage, with the remainder going to the heirs.
· Tenure of Loan: As per the scheme formulated by National Housing Bank (NHB), the maximum period of the loan period is 15 years. The residual life of the property should be at least 20 years. Where the borrower lives longer than 15 years, periodic payments will not be made by lender. However, the borrower can continue to occupy.
· Income Tax: For tax purposes it has been clarified that reverse mortgage would not amount to “transfer”, and stream of revenue received by the senior citizen would not be “income”. Consequently, from FY 2008-09, the lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax.
Note- Reverse mortgage is a fixed interest discounted product in reverse. It does not take into account the changes in interest rates as yet.
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Good clarification you shared about reverse mortgage of India.
ReplyDeleteReverse mortgages are a great way to tackle rising property taxes and other financial issues for older people until and unless they are unfortunately ending up into scam ,which is always traceable these days.
ReplyDeleteYou may also refer:
ReplyDeletehttp://www.urvashimaharshi.in/2013/05/reverse-mortgage-scheme.html
This type of Loans are not yet popular in India yet. But still there are some companies that provide Reverse Mortgage Loans through Deals from various banks. I got one such company in Pune that offers such Reverse Loans in India.
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The senior citizens will be feeling relieved by this Reverse Mortgage Loan policy as now they can fulfill all their dreams if they own a property in their name.
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