With preference for nuclear families and staying independent increasing, getting old in India is slowly becoming a scary proposition. Without a regular income, senior citizens are finding it increasingly difficult to manage their daily expenses along with meeting the escalating costs of healthcare and other services. As more and more people are realizing, relying on just one’s savings or investments during old age may not be enough!
So what are the options that a senior citizen has, to live a life of dignity? Are there any avenues open for them to earn a regular income even at their age? Till a few years back, these would have been very difficult questions to answer. But now, there is a ray of light for at least those senior citizens who own a house or apartment in their name. It is called Reverse Mortgage.
Reverse Mortgage Concept
The principle of Reverse Mortgage is quite simply the opposite of a Home Loan EMI. When you take a home loan for your apartment, you are expected to pay a monthly amount for a fixed period of years. In the case of Reverse Mortgage, the bank pays an EMI to the apartment owner for a fixed period of years. This EMI can be used as a monthly income by the home owners.
The process of getting a loan on your home starts with your application. This is followed by an evaluation of your home by the bank. Depending on the prevailing rate at your complex and the locality in which it is based, the bank will reach a valuation for your apartment. The better the quality of your apartment complex, greater is the chance of getting a high valuation for your property.
Once the valuation is done, you can decide on a tenure for which you’d like to receive the loan. Once the loan is availed of, the senior citizens can stay in their apartment and receive the payments from the bank till the end of the tenure. If the couple or either of them survives the tenure of the loan, they can still continue to live in their apartment till their death. It is important to note here that the bank cannot take possession if the owner expires but the spouse is alive. The possession changes hand only when the couple is no more – irrespective of who the owner was. Once the bank gets the possession, they can sell the apartment at the market rate and deduct the loan amount plus the interest on it. Any remaining amount will be handed over to the heirs of the home owner.
There are certain conditions for availing the Reverse Mortgage, however.
- The home owner should be a senior citizen (60 years and above)
- The maximum loan is up to 60% of the apartment value subject to a maximum amount of Rs. 50 lakhs
- The maximum period for the mortgage is usually 15 years. Some offer 20 years though.
- The amount received is considered as a loan and not income. This ensures that the amount is tax-free in the hands of the senior citizen.
- Payments can be made in monthly, quarterly, or annual instalments. A lump sum payment could also be considered if the owner so decides.
- The banks can charge a fixed or floating rate of interest on the loan being disbursed. This will be adjusted against the sale of property at the end of the tenure or on the demise of the owner and his/her spouse.
- One can pre-pay the loan amount at any time during the loan tenure
Reverse Mortgage in India
The concept of reverse mortgage is very popular in the West. But it is yet to find acceptance on a mass scale in India. One of the reasons could be the low awareness of the product. But probably the more important one is about perceptions. Although the advantages of reverse mortgage seem high (steady source of income, possession of house till death, etc.), mortgaging ones property is yet a new concept for Indians to accept. Added to this is the fact that most Indian parents like to bequeath their property to their children, instead of using it up for their own purposes.
What could change these perceptions is the changing reality of modern India. One of the realities is of children staying separately from their parents. Not just in a different house, but many children now settle far away – at times even in a different country altogether. Plus, many children are more often to sell off their home on inheriting it. The gap in geography also takes its toll on the emotional connect; it is not unusual to see the growing disconnect between parents and children of the present generation. All these factors could make Reverse Mortgage a more popular avenue for income generation for senior citizens.
Many banks and a few housing finance companies offer Reverse Mortgage. Here’s a list of some banks at which you could enquire about this option:
- State Bank of India
- Punjab National Bank
- Indian Bank
- Central Bank of India
- LlC Housing Finance
- Andhra Bank
- Canara Bank
- National Housing Bank (NHB)
- Dewan Housing Finance Limited (DHFL)
Today, most young couples put their life’s saving into their dream home. Many may not realize it now, but the apartment in which they are investing so much could well be their savior in their latter years.