Reverse Mortgage

Presented By Navin Sonara

A reverse mortgage (or lifetime mortgage) is a loan available to senior citizens. Reverse mortgage, as its name suggest, is exactly opposite of a typical mortgage, such as a home loan. A typical of mortgage in which a homeowner can borrow money against the value of his or her home. Reverse mortgage, the borrower creates a charge over the property owned by him in favor of the financing institution and receives periodical stream of payment. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold.

How does it work?

In a typical mortgage, you borrow money in lump sum right at the beginning and then pay it back over a period of time using Equated Monthly Installments (EMIs). In reverse mortgage, you pledge a property you already own (with no existing loan outstanding against it). The bank, in turn, gives you a series of cash-flow for a fixed tenure. These can be thought of as reverse EMIs. Simply put, any senior citizen, opting for reverse mortgage will get annuity (the reverse EMI) from the bank. After that, the annuity payments stop. However, they can continue to live in the house.

The Features of this Loan

Any house owner over 60 or more than 60 years of age is eligible for a reverse mortgage.

The maximum loan is up to 60% of the value of the residential property.

The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.

Monthly payments are set up as a Tenure payment. Borrower receive them for the rest of their lives no matter how long they live.
The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability. Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.

What happens after the death of one or both of the spouses?

If one of the spouses dies, the other can still continue living in the house. If both die, the bank will give their heirs two options settle the overall outstanding loan and retain the house, or the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs.

How is the loan paid?

With a reverse home mortgage, no payments are made during the life of the borrower(s). Since no payments are made during the term of the reverse home mortgage loan, the loan balance rises over time. In most areas where appreciation is good, the value of the home grows at a much faster rate than the loan balance. Therefore, the remaining equity continues to grow. When the last borrower passes, or it is decided to sell the home and move, the loan becomes due. The ownership of the home is then passed to the estate or directed by a living will or will to the beneficiaries. The beneficiaries now own the home and have to sell the home or pay off the loan. If the home is sold, the reverse home mortgage lender is paid off and the beneficiaries keep the remaining equity of the home.

Loan to value ratio

Loan to value ratio means the percentage of loan that you will get for the value of the property that you pledge. The typical rate loan to value ratio is 60 per cent. So, for e.g., if you pledge a property worth Rs 60 lakh, then the loan amount that you can get is Rs 36 lakh.

This scheme is not so popular

Recent reports seem to indicate that a very small percentage of senior citizens only seem to have taken advantage of the facility since its inception. This could be perhaps because better awareness had not been created about the product.
The product is still evolving and may take on new dimensions depending on how the banks wish to present its consumer appeal.

Educational Loans

Aim is to provide financial support from the banking system to deserving students for pursuing higher education in India and abroad. All banks are offering educational loans, but the scheme differs from bank to bank. Eligibility:The student should be Indian national and should have secured admission to professional/technical courses through Entrance Test/Selection process or should have secured admission to foreign university/institutions. He/She should have scored minimum 60%(50% for SC/STs) in the qualifying examination for admission to graduation courses. Eligible Courses:In India- School education including Plus 2 stages. Graduation Courses and Post Graduation Courses. Abroad- Graduation, for job oriented professional /technical courses offered by reputed universities, Post graduation, MCA, MBA, MS etc. courses conducted by CIMA- London, CPA in USA etc. Quantum of Finance:Need based finance subject to repaying capacity of the parents /students with margin and the following ceilings. In India- Maximum Rs. 7.50 lakh Abroad- Maximum Rs. 15 lakh

Security:Up to Rs. 2 lakh- no security Above Rs. 2 lakh- Collateral security equal to 100% of the loan. Margin:Up to Rs. 2 lakh- Nil Above Rs. 2 lakh- In India- 15% Abroad- 20% Rate of Interest:Up to Rs. 2 lakh- PLR Above Rs. 2 lakh- PLR + 1% Repayment:Course period + 1year or 6month after getting job, whichever is earlier. The loan has to be repaid In five to seven years from commencement of repayment.

Automobile Loans

Bank are extending credit for purchase of new two/four wheeler for personal/professional use. Bank finance is also available for purchase of used cars less than three years old. Eligibility:Permanent employees of State/Central Government/Public/Private Joint Sector/Firms/Educational Institutions. Professional/self-employed individuals who is an IT asssessee. Persons engaged in agriculture and allied activities. Salaried borrower with remaining or sufficient service to liquidate the loan one year prior to retirement. Salary I credited to SB/CD account at bank and irrevocable letter obtained from employer to remit installments to bank till liability is liquidated.

Finance can also be extended to firms/companies.

All new accounts w.e.f 01.04.2004 are subject to scoring models as prescribed in IC 6853 dated 20.04.2004 and should fall under minimum investment grade of 40% marks.

The borrower should be 18years and above.

Quantum of Finance:The maximum amount of loan is limited to three times of net income/net annual salary subject to a maximum of Rs. 10 lakh. Margin:20% on the cost of vehicle -new vehicles. In used vehicles- less than 3years old the margin requirement is 50%. Wherever the loan is given under an institutional tie up, the margin is further reduced to 10%. Rate of Interest:Under tie-up arrangement for cars- up to 3years over 3years, 9% Not Under tie-up arrangement for cars- 9%, over 3years: 9.5% Under tie-up arrangement for two wheelers- 9%, above 3years: 9.5% Not Under tie-up arrangement for two wheelers- 9%, above 3years: 10% Bank Charges:Rs. 276 for two wheelers Rs.551 for a loan up to Rs. 2 lakh Rs.1102 for a loan above Rs. 2 lakh Repayment:Two wheelers-36EMIs Four wheelers- 60EMIs

Discounting/Purchase of Cheques

When a persons are in need of money, then they may request bank to discounting/purchase the cheque and credit the proceeds to their account. If the cheque is discounted, the discounted value i.e. the face value of the cheque minus banks charges like interest, postages, handling charges etc. will be credited to the account.

When purchasing the cheque, the face value will be credited to the account and the interest and other charges will be debited to the account as and when the cheque is realised.
Discounting/Purchasing of cheque is a credit facility. When the bank discounting/purchase the cheque, they open a loan account in the name of the customer who deposited the cheque and debit the value of the cheque to that account. They then send the cheque for collection to their branch at the centre where the cheque is drawn. If the bank is not having a branch, they will send the cheque to their agency bank. When the cheque is realised, the branch/agency bank will send the proceeds to the branch from where they received if after deducting their charges.

On receipt of this credit, the branch credits the amount to the loan and close the account. The charges and interest are collected from customers. In the case of foreign currency cheque, conversion of foreign currency into domestic currency becomes necessary.