Retirement
planning is one of the most important goals of every individual and we make
every effort to ensure the same. We need to understand that we have limited
resources and our needs are multiple. We have to fulfil many financial goals in
the life with limited surplus available month after month. But what happens if
you do not have necessary resources and unable to fund life’s most important
goal. Nowadays expenses have shoot up due to double digit inflation. Education
costs are also increasing at more than normal inflation rate. Lifestyle
expenses and EMIs of various loans have also gone up, leaving limited surplus
for investment. In such situation we have to reduce our goals or drop a few
goals as not achievable. We mostly compromise our other goals without looking
at other options available. When it comes to retirement planning, we advise our
clients that there is nothing to worry as your self -occupied property can always come to
your rescue. Whenever we find there is not enough surplus and is not possible
to fund retirement funding fully, instead of compromising on other major goal
of education or marriage, we always allocate existing home towards retirement
goal. Normally self occupied house is taken as personal asset and is not
allocated to other goals while carrying out financial planning. But, in rare
case when it is difficult to fund retirement fully, we allocate existing home
towards retirement goal and ask client to opt for reverse mortgage after
retirement when there is no other alternative is left.
Reverse
mortgage is exact reverse or opposite of mortgage loan. In mortgage loans you
mortgage your property with the bank or NBFC and take a loan and repay the loan
in monthly instalments which are known as EMIs. In reverse mortgage instead of
paying EMI to lender, lender will pay you monthly instalments against the
property till you are alive and there is no need to repay the loan amount and
interest part as long as you are alive. The scheme is framed to help the senior
citizens who own home but find it difficult to meet day to day household
expenses of the family. The salient features of the scheme are as under:
1) Any person who is a senior citizen of India above
60 years age is eligible to take reverse mortgage. Married couple are also
eligible as joint borrowers provided at least one should be above 60 years and
the other should not be below 55 years.
2) Borrowers should be legal owners of the self
acquired and self occupied residential property located in India and property
should be free from all encumbrances.
3) The
maximum amount of loan available ranges between 45% to 60% of the market value
of the residential property and age of the borrower.
4) The Maximum disbursement period is 15 to 20 years
depending on bank to bank.
5) The
maximum monthly payment at present restricted at Rs. 50,000 p.m.
6) The rate
of interest at present is between 11% to 12% p.a.
7) Residual life of the property should be at least
20 years.
8) The prospective
borrowers should use that residential property as permanent primary residence.
9) The ownership of the property remains with the borrowers
10) The
revaluation of property is required to be done once every 5 years.
11) The
borrowers can pre pay the loan at any time during the loan tenure and there is
no pre payment penalty for such prepayments.
12) The loan
is repayable only in case of death of last surviving borrower or borrowers
would like to sell the home or would like to permanently move out of the home.
13) The
borrowers and their heirs have the first right to settle the loan along with
interest due, without sale of property.
14) The
balance amount if any remaining after settlement of the loan is paid to
borrower/s or their legal heirs as the case may be.
15) All
periodic payments are exempt from income tax under Section 10(43) of the
Income-tax and is also specifically provided u/s 47 (xvi) that any transfer of
capital asset under reverse mortgage scheme shall not be treated as transfer
and hence no capital gain tax is payable.
Reverse
mortgage can really help you in rainy days to maintain the same standard of living
even you do not have other source of income. It is advisable to compare the
schemes offered by different lenders before opting for it.
This article first appeared at myiris.com on 10th July'2012.
