Is Reverse Mortgage for Elderly - A Boon Or A Bane?

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One must have surely heard the famous saying “Age Is A Question Of Mind Over Matter. If You Don’t Mind It Doesn’t Matter”. One must be wondering whether this statement holds true in our country. One surely knows that old age is filled with those costly visits to the Doctors and healthcare specialist’s in our country .In India it is a common practice to ignore palpitations, fever, gas trouble and heart conditions among the elderly. Why Worry Now. Let Us Go To The Hospital When It Is Really Serious. Isn’t this the approach practiced in our country by the elderly more often than not? The cost of healthcare is too high that the elderly are loathe to go for an ordinary medical checkup and costly treatment for serious ailments is out of question Is There A Solution For The Elderly To Procure That Much Needed Medical Treatment? In India it is a common practice for the elderly to legally transfer their house and property to their children in the hope that they will be well taken care of in their old age. But Does This Really Happen? More often than not the children do not take care of the needs of their elderly parents and they would be thrown out of their houses and left to fend for themselves. The very dream home which was supposed to be the support in their old age turns out to be a bane in their old age. Does One Believe Reverse Mortgage Would Help The Elderly In Our Country?

 

What Is This Reverse Mortgage?

One knows that the reverse mortgage is a loan taken against ones home which does not need to be paid back for as long as one lives there. This is available only to senior citizens above 60 Years of age .However one needs to own a residential property whose title is in his/her own name and needs to occupy or reside in that property. The property needs to be self occupied with no other loan against it. In a reverse mortgage operation the owner of the home ,a senior citizen generates cash flows from his home by borrowing against his home and continues to stay in his home. The amounts are obtained as a lump sum or as a regular monthly cash advance like a salary. A certain processing fee is charged while sanctioning the reverse mortgage loan amount which might be 1% of the loan amount sanctioned. The maximum monthly payments made by the bank cannot exceed INR 50000 per month. The lump sum cannot be more than 50% of the total eligibility amount with a ceiling of INR 15 Lakhs. The loan can be availed in a limit up to 60% of the value of the house. The maximum loan amount along with interest is restricted to a Crore of Rupees. The bank might make an assessment of the property based on the circle rate or the market rate, strength of the structure and the general maintenance of the property. Higher quantum of loans in the range of 60% of the value of the property can be obtained if one is around 70 Years of age. The rate of interest charged is around 12-15% per annum. One can avail of this facility as long as one does not sell the house, permanently move out of the house or as long as one is alive. In a typical home loan one needs to have a certain minimum salary to have that home loan sanctioned. In the case of reverse mortgage even if one does not have an income one can qualify for this kind of a loan.

How Does Reverse Mortgage Work In India?

A reverse mortgage available for a senior citizen above 60 Years is exactly opposite to that of a home loan mortgage. In a home loan mortgage one borrows a lump sum amount and has to pay back these amounts as a series of Equated Monthly Installments over a fixed tenure.The EMI has a principle and an interest component. The home is pledged as security and is seized in case of non repayment of the loan amount. In a reverse mortgage the home or property already owned is pledged provided it has no existing loan against it. The title of the house continues to remain in the name of the owner, in this case the senior citizen.The bank or Housing Finance Company in this case makes a series of payments or cash flows for a fixed period of time which might be for a maximum tenure of 15 Years and in some cases can go up to 20 Years.The payments are received from the bank on a monthly, quarterly, annual or a lump sum basis.

The amounts received under the reverse mortgage scheme from the bank are considered as a loan or a liability and no tax is paid on these amounts. These loans are typically fixed but floating rate loans are available which fluctuate in lieu of the market conditions. The home needs to be in the name of the senior citizen and must not be let out or given for rent even on a partial basis. The title of the home is in the name of the senior citizen and he continues to pay the maintenance, tax and repair charges. The reverse mortgage payments are made by the bank typically for a period of 15 Years in the form of a reverse EMI after which the payments stop. Higher the age of the senior citizen more are the amounts required by him to maintain himself and consequently higher is the amount available as a loan to value ratio under the reverse mortgage scheme. The owner and his spouse continue to stay in this house even though he might outlive the tenure of the loan. The interest amounts keep accumulating until the loan is settled. The loan becomes due only on the death of both the senior citizen and his spouse.The reverse mortgage amount becomes due along with the interest component when the senior citizen decides to sell the house or both he and his spouse go to their heavenly abode. When both the borrowers die the bank gets in touch with the legal heirs of the property and gives them the option to settle the pending loan amounts along with the interest component and take possession of the house. If the legal heirs are not able to do so the bank auctions the property and uses the proceeds to collect back the loan amounts along with the interest component and the rest of the amount is given to the legal heirs. The property appreciates with the passage of time as long as the senior citizen maintains it well and concentrates on its general up keep. This is viewed as a major benefit and serves as an incentive for the legal heirs to reclaim the property by paying off the dues as well as an emotional attachment of the legal heirs towards the property. The needs of the senior citizen are well taken care of and he continues to stand on his own feet even in his old age. Under the reverse mortgage mechanism the elderly citizen forces his children to support him in his elderly years.

 

Why Is Reverse Mortgage Viewed With Skepticism In India?

·         An emotional attachment of the senior citizen to his home which was once his dream house renders any attempt made to entice him to take up a reverse mortgage policy futile. Lack of understanding of the mechanism of reverse mortgage causes him to view these financial instruments with skepticism.

·         In India one follows a tradition passed down from generations where the son inherits the property of his parents. The parents view this as an honor to pass down the property to their children out of love and affection and also out of a desire to be called good parents. They would not want to pass on a loan along with the inheritance which would become a burden on their children. So reverse mortgage fail to attract much attention due to this aspect.

·         The reverse mortgage loans command a very high rate on interest and are viewed as a method of passing on debt to the next generation. In India especially among the senior citizens debt is viewed with great aversion and one is loathe to pass debt to the next generation.

·         Only a single mortgage is allowed on ones house. Any reckless spending will lead to a severe financial crisis and the loss of the house. Loss due to speculation or business is a strict no no for the elderly citizen.

 

Remember It’s Not The Years In Your Life That Count But The Life In Your Years

What greater pleasure can one have than spending ones last days in one’s own home? One can continue to live in one’s own home till one dies and even after that one’s spouse can continue to live in that house.“Home Isn’t A Place It Is A Feeling” Reverse mortgage gives the elderly citizens of our country the right to spend their last years in their own homes without money becoming a hindrance for them to enjoy the good things in life. They can spend life in a carefree manner without having the worries of those health bills. However reverse mortgage should not become a substitute for a proper retirement plan. Reverse Mortgage should be viewed in tandem with that retirement plan. In case things were not to fall in place with ones retirement plan then the reverse mortgage plan serves as a backup plan and helps one to tide over any crisis that one might encounter in ones old age when one can do nothing about it. So always make that retirement plan but keep a backup plan ready in case you fail. Use Reverse Mortgage as that backup plan. Remember To Create Your Own Destiny, Else Someone Else Will.

 

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