Before we begin, this article is dedicated to all those Senior Citizens who are facing financial hardships in their old age. Dear Grandpa's and Grandma's this article is for you...
This article is about a new source of income that is available for all Senior Citizens who own a house. It is called "Reverse Mortgage". This is a very popular scheme in the United States and has recently been introduced in India.
What is a Reverse Mortgage?
A Reverse Mortgage is similar to a Home Loan with a small difference. Instead of us repaying the bank monthly EMIs the Bank will pay us a Monthly Amount for as long as the Customer (Senior Citizen) is alive. After the demise of the Senior Citizen or end of loan tenure whichever is earlier, the bank will take possession of the house, sell it to collect the amount the customer owed them and pay the remaining to the survivor of the customer.
The great thing about this loan is the fact that, the customer can continue to stay/reside in the property during the loan tenure.
Sounds an Interesting Proposition, doesnt it?
Who can Use this Reverse Mortgage Loan?
Any Senior Citizen who is older than 60 years of age and owns a property in his/her name is eligible to apply for this Reverse Mortgage Loan. The amount we get every month depends on the value of the property we own.
How will this Reverse Mortgage be useful?
Funding their expenses post retirement when there is no regular monthly income is the single biggest concern in India. Especially since we do not have a well-established Social Security kind of System in India. So, citizens are left to fend for themselves. A majority of Senior Citizens in India do not have much savings and are entirely dependent on their children for their survival.
Lack of Financial Independence is something that no elderly individual in our country must go through. But, unfortunately the harsh reality is the fact that almost 80% of the Senior Citizen population in this country are Financial Dependent on their Children and hence all the trouble.
Can We Repay this Reverse Mortgage Loan?
Yes. If the Survivor of the customer or the customer himself wishes to close the loan, they can settle the whole amount due (including the Interest) to the bank and reclaim the property.
Some Terms & Conditions Reg. this Reverse Mortgage Loans
1. Any house owner over 60 years of age is eligible for a Reverse Mortgage
2. The Maximum Amount that can be borrowed is up to 60% of the property value. The Exact amount varies from bank to bank
3. The Maximum period of property mortgage is 15-20 years depending on the Bank
4. The borrower can opt for monthly/quarterly/half yearly/annual or lumpsum payments at any point as per their wish
5. The Bank will conduct a Revaluation of the property once every 5 years
6. The amount received from the bank is considered a Loan and not an Income. So, it is not taxable
7. Banks offer both Fixed & Floating Rate Interest options on the loan. The customer can choose the scheme that suits them best
Banks in India that Offer Reverse Mortgage
Almost all major banks in India offer this scheme. Bank of Baroda, Punjab National Bank, State Bank of India are some of the top names that offer this Scheme.
A Sample Example Calculation
Let us say Mr. Mahesh a senior citizen in my locality owns a Flat in Chennai that is worth 75 lakhs in todays market price. So, he is eligible for a Reverse Mortgage Loan of up to 45 lakhs.
What will be his monthly income if he chooses a Loan Tenure of 10, 15 or 20 years?
For 10 years - Rs. 21,375/- per month (At Rs. 475 per lakh for 45 lakhs)
For 15 years - Rs. 10,340/- per month (At Rs. 230 per lakh for 45 lakhs)
For 20 years - Rs. 5,625/- per month (At Rs. 120 per lakh for 45 lakhs)
Does this Scheme have any Negatives?
As pointed out by one of our blog readers Mr. MN, this scheme too has a drawback.
If the borrower outlives the loan duration, the bank will still take possession of the house and try to sell it to collect the money the borrower owes them. So, this is something every senior citizen must keep in mind before signing up for this loan.
Our beloved Senior Citizens have worked for more than 40 years of their lives to support their children. Post retirement, they must not have to face financial hardships just because they arent earning. Schemes like this Reverse Mortgage are a boon to these people to meet their monthly cash requirements. Even in todays cost of living 10,000 rupees is a significant amount of money that should be sufficient to meet the cash requirement of two people who have no Rental commitments to pay.
All in all, this is an excellent proposition for all Senior Citizens who are looking for a second source of Income.
A Humble Request: Not many people know about this Reverse Mortgage Scheme. It would be a good idea to share this information with all your friends so that they can pass on this valuable piece of information to help out the needy Senior Citizen population of our country. If even 100 Senior Citizens of our country benefit out of learning about Reverse Mortgage Scheme by reading this blog, I would consider it a fantastic success... Best Wishes!!!