Reverse Mortgage For Senior Citizens.
( The following narration is for representational purposes only.)
Mr & Mrs Lobo reside in Bandra in a 1 BHK flat. They are nearing 70 years. They have two children. The son is married and works abroad. Their only daughter, also married, lives in Chennai and is busy looking after her family. Both children send them some money occasionally which is insufficient for paying their monthly bills. The Lobos live a very frugal life, blissfully unaware that they are actually sitting on a cache of wealth.
Their small flat in Bandra is worth more than Rs 2 cr which will eventually be inherited by their two children. Yet they eke out a measly living. Some good soul told them about reverse mortgage loan. They approached a bank for a loan. Today they are happy and are living with dignity. What's more, their children seem to have had a sudden change of heart. They are now more caring, more loving and send them more money.
So what is reverse mortgage? To make it very simple, let us take the example of a recurring deposit (RD). Let us assume that Mr Lobo (depositor) opts for a monthly RD of Rs 500 for 10 years tenure. At the end of 10 years Mr Lobo will have deposited Rs 60,000 but he will receive approximately Rs 100,000 from the bank @ 8.5% interest.
Reverse mortgage works in just the opposite way. Instead of Mr Lobo depositing money every month, the bank will deposit Rs 420 every month into the account of Mr Lobo for 10 years for a loan of Rs one lakh against his mortgaged flat. (The amount is less because banks charge about Rs 12.5% as interest). For a loan of Rs 10 lakh Mr Lobo will receive Rs 4200 per month and for a maximum loan of Rs 1 cr the bank will give Mr Lobo Rs 42,000 every month for 10 years (figures are approximate).
What if Mr Lobo wants to close the loan prematurely? No problem, he will have to repay the amount received by him along with interest. What if Mr Lobo unfortunately passes away after 6 years or so? Mrs Lobo (the spouse) will continue to receive the monthly instalments. What happens after 10 years? Mrs Lobo can continue to stay in the flat for her lifetime but the bank will not make further payments to her.
After the demise of both spouses the bank will calculate the principal along with interest and offer the legal heirs first option to recover the mortgaged flat. If they show no interest, the bank will auction the flat, keep the amount due to them and hand over the balance amount to the legal heirs of the Lobos.
Reverse mortgage loan is meant for senior citizens only and is available for 5/10/15/ 20 years but the amount receivable decreases over longer periods. Also the tenure of the loan is less for older persons. At 80 years, a person will have to opt for a 5 year mortgage. In case of medical emergencies or other needs a one-time lump sum loan of up to Rs 15 lakh is available. The loan is advanced only to the owner of the flat though all benefits are receivable by the spouse in case of the owner's demise.
Reverse Mortgage is tailor made for people like the Lobos. It gives them financial independence and yet provides something substantial for their children even after repossession, as value of property increases with every passing year.
Published by HT Syndication with permission from Indian Currents.
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