More on Reverse Mortgage for Elder People

Hi!

There was actually the need of a product like Reverse Mortgage for elder people who have reasons to feel insecure regarding their home sweet home.

As far as I know, the most critical factor in deciding the amount of the loan here is age. The older the borrower is, the chances of getting a higher value are more.

And, the interest rate at which the loan will be given will be a little higher than the prevailing interest rates as the lending company will receive its money when the borrower dies. However, currently on the basis of present actuarial analysis, the loan to value ratio is fixed at 45-60 per cent of the value of the property based on the age.

But, what if the borrower outlives the loan tenure? What procedure will HFCs take in this regard?

A house is considered to be a very dear asset in India. It has a very high emotional value attached to it. Therefore, creating a debt on it will require a big change in the present mindset.

Also, house is something, which one usually leaves behind as a legacy for ones’ children. Therefore, to give it away to a bank would be another mindset hurdle to overcome.
Reverse mortgage is a new product and there are bound to be some teething problems. Not withstanding all the above issues, which seem quite challenging, the reverse mortgage is a product, which offers an option to the old people to continue to live with dignity.

Awesome thread,

Reverse mortgages can be a great solution for seniors who wish to remain in their home but are having difficulty making their monthly payments and meeting other financial obligations. Reverse mortgage operates in a manner opposite to that of the typical mortgage such as a home loan. In a typical mortgage, you borrow money in lump-sum right at the beginning and then pay it back over a period of time. In your payback -- the EMI -- a portion goes towards paying the interest and the remaining goes towards paying back principal. :)

Reverse Mortgages--Implications

Of all said and done, it is very important to note that availing of benefits under the reverse mortgage concept entails valuation of property, drafting of a legal Agreement , stamping/registering and other procedural formalities of the Institution in question, which means hiring of Professional services, which in turn entails cost. It is therefore essential to asceratin the consumer friendliness of the concept in order to make it slightly more popular a concept in India.

Secondly,it would be interseting to know how the Tax Authorities are treating this income, whether as INCOME as understood by the Income Tax Act or as a Loan? In either case the situation does not give the consumer in question any respite.

Thirdly, after the death of the consumer the surviving heirs have a right to either pay off the entire due and step in as the shoes of the deceased as the legal Owners/Holders of the property or take away the surplus(if any) after the property in question is sold off by the Institutuion concerned.However in order to ascertain the genuinity of the "surviving Heirs" of the deceased the Institution will have to carry out its own legal due diligence and also will have to asceratin whether the deceased had executed any "Will" in respect of the property in question and many other such legal questions.


Fourthly,whether the Institution in question be liable to pay any Property Gains Tax" after the sale of such a property? Well I am not really able to make any guesses on that..