As Finance Minister has now clarified that no Income Tax is payable on
amounts received by neither Senior Citizens from Mortgaging Organization nor
any capital gain is payable on higher assessed value of their flats given on
mortgage, this Scheme has become quite advantageous to Senior Citizens
having their flats needing additional income. Let needing Senior Citizens
take advantage of this Scheme and improve their standard of living.
Introduction:
Number of Senior Citizens in our country as well as the whole world is
increasing day by day due to various factors like overall economic growth,
low mortality, advancement of medical science etc. Such a huge number of
experienced and talented think tanks of the society can not be ignored by
any Government or Society! With a view to provide a steady stream of income
to Senior Citizens owning residential premises, our Finance Minister had
announced the introduction of a novel Loan Facility called “Reverse
Mortgage Loan“ (RML)in his last Budget Speech. Government owned National
Housing Bank has since notified detailed operating instructions for guidance
of Primary Lending Institutes (PLI) viz Scheduled Banks and Housing Finan ce
Corporations (HFCs). PLIs have been advised to observe and maintain high
standards of conduct with Senior Citizens and their families and treat them
with special care, fairness and sympathy. They are also advised to disclose
and explain all terms of the loan clearly. They should give full details of
methodology followed in valuation of Residential Premises, quantum of loan
and all pros and cons of loan. They will also explain the details of
Agreement to be entered into for Mortgage. As a customer-friendly gesture,
even after loan is sanctioned and documents executed, borrowers shall be
given 3 clear days to cancel the transaction (Right of Rescission). Punjab
National Bank (PNB) has since introduced its Loan Scheme named “Bagban“
and Dewan Housing Finance Corporation Ltd (DHFL) as “Saksham“. Indian Bank
has also notified its scheme in Aug,07. State Bank of India and several
others have also notified their Schemes. Other Scheduled Banks and HFCs are
likely to announce their schemes shortly.
Necessity:
Generally, Loan is not acceptable or advisable in our culture but culture
not of our country but almost the entire World to-day is completely changed.
Farmer takes loan for tractor, seeds etc to increase production. Citizens
take loans for bikes, cars, T.V., Fridge, and House Building etc.
Governments are taking loans for food grains to feed population, water
supply schemes, roads, machinery, arms etc for welfare as well
as quick development of the country. Due to abnormal increase in dearness,
overall progress and easy availability of various things and facilities, it
is difficult for many Senior Citizens to live comfortably within their
present income. Many had not planned for such a long life span. There are
Senior Citizens, who have some income out of pension or savings but not
sufficient to meet all their basic needs. There are some, who have good
income for basic needs but not sufficient for good health care facilities,
picnics, pilgrimages, sight seeing or similar needs of better life. They are
not able to spend much for social obligations like marriages of children
etc. There are some, who have enough income to meet such needs but not
sufficient for fulfillment of their childhood desires, fancies and fantasies
like visits to Far-East, Alps, Switze rland, Europe, America or similar
desires! Almost all Senior Citizens have worked hard during their prime time
and spent their hard earnings for family and social obligations etc and
hardly anything on self. Many have saved and/or taken loan for providing
Residential Premises and take pride of having such premises. They are
staying in such self acquired premises for quite some time and have personal
attachment to that place. Their children do not require these premises or
anything from them, being well off and staying independently and want their
parents to enjoy and live comfortably. Senior Citizens do not wish to sell
off and go to smaller premises or native place, even when they need more
income. The price of their property has increased considerably, as compared
to their purchase price and it has become their `Home -Equity Wealth`. This
Reverse Mortgage Scheme is to help all such Senior Citizens to augment their
income and empower them to enjoy the fruits of the booming economic progress
of the country in their last spell of life and to live decent life, if not
King-size, at least quite comfortably.
Scheme:
Under this Scheme, any Senior Citizen of 60 years and above, resident of
India, having a self-acquired and self-occupied Residential Premises having
residual life of at least 20 years and without any encumbrances and in which
he is staying at present for one year or more can mortgage the premises to
any PLI of his choice. Married couple will be eligible as joint borrowers.
In such cases, only one of the borrowers need be 60 and above. One great
advantage for borrowers is that there is no service of loan during their
life time/tenor i.e. no pay-backs.
Amount of Loan:
The amount of Loan by P.L.I. shall depend upon realizable market value of
residential premises assessed by P.L.I., age of borrowers and prevalent rate
of interest. According to guide lines of N.H.B., the loan amount along with
interest on the basis of Reverse Annuity Mortgage that will accrue till the
end of tenor of loan may generally be limited as under:-
Age Group Loan amount to be limited to Assessed Value of Residential
Property.
60-65 40%
66-70 50%
71-75 55%
Above 75 60%
As these are guide lines only, P.L.I.s follow their own standards. Punjab
Nation Bank is keeping margin of 20% and has kept the upper limit of loan
with accrued interest as 1cror. Rate of interest by P.N.B. is 10% ; by
D.H.F.L. 12%and Indian Bank 10% by keeping uniform margin of 61% in all
cases for 15 years tenor and loan to asset value 39%. The methodology
adopted by each P.L.I. for determining the quantum of loan including the
detailed tables of calculations, the rate of interest and assumptions, if
any, shall be clearly disclosed to the borrowers. The valuation of property
shall be reassessed at some intervals but at least once in 5 years and
amount of loan shall be revised upward or downward as per revaluation.
P.N.B. has fixed 5 years, D.H.F.L.& Indian Bank as 3 years for revaluation.
Borrowers shall have full liberty to accept or reject the revaluation by
paying the amount due at that time to P.L.I. All P.L.I.s have to ensure that
the equity of borrower in residential premises (Equity to Value Ratio-EVR)
does not at any time during the tenor of loan fall below 10%. The following
tables of P.N.B. and Indian Bank shall give an idea as to what amount of
loan per month may be available for different tenors of loan per 1 lakh of
value of residential property:-
Tenor-years 10 11 12 13 14 15 16 17 18 19 20
Amount Rs. 490 420 360 315 275 240 215 190 170 150 135 P.N.B.
216
I.B.
410
DHLF.
As per DHLF rates, a property worth Rs. 20 lakhs for instance will earn Rs.
4100 per month for 10 years. After adding up interest at 12 %, the amount
payable to DHFL would be around Rs. 10 lakhs.
Nature of Payment:
The loan shall be payable in one or more installments in lump sum or
monthly, quarterly, half yearly or annual installments, as may be mutually
decided by borrowers & P.L.I.s. It can also be paid by way of committed line
of credit. Lump sum payments may be made conditional and limited to special
requirements such as medical emergencies, home improvements, maintenance,
upgradation, renovation, extension, insurance of residential premises. This
can be used even for repayment of existing loan taken for the residential
property to be mortgaged and any other genuine needs of borrowers. This loan
is to supplement the existing income, if any, but can not be used for any
speculative, trading or business purposes. The loan-amount shall generally
be paid to borrowers directly except where payments are required to be made
to outside parties for repairs, maintenance, insurance, property tax, re
payment of loan of residential premises to be mortgaged etc. The Loan shall
be secured by way of equitable mortgage of self-acquired & self-occupied
residential property in favour of P.L.I. in suitable form/agreement. The PLI
shall enter into a detailed loan Agreement setting out all salient features
of loan mortgage security. No Income Tax is payable on amounts received by
Senior Citizens from Mortgaging Organization nor any capital gain is payable
on higher assessed value of their flats given on mortgage.
Initial Cost:
The P.L.I.s will provide in writing a fair and complete package of RML
material and specimen documents covering the benefits and obligations of the
product. They shall also make available interest rate and details of
capitalization of interest on loan etc. The initial costs (closing costs)
may include the customary and reasonable fees and charges for Origination,
Appraisal, Inspection & verification, Title Examination Fees, Legal
Charges/Fees, Stamp Duty, Registration charges, Property Survey & Valuation
charges. A detailed schedule of all such charges shall be provided to
prospective borrowers by PLIs.
Settlement Of Loan:
The loan shall become due and payable only when the last surviving borrower
dies or would like to sell the premises or permanently moves out of home to
stay with some relatives or some institute of aged care home. If the
borrowers do not live in the premises continuously for one year or more or
do not intend to live there continuously, it shall be treated as moving out
permanently. Settlement of loan along with accumulated interest shall be met
with by proceeds received out of sale of mortgaged property. The balance
surplus, if any, shall be passed on to borrowers or their heirs/estate. The
borrowers or their heirs can repay the amount due from any other source and
get back the mortgaged property. They can also prepay the loan and interest
at any time during the loan tenor also without any levy/penalty/charge for
such prepayment. The borrowers sh all be allowed to continue to stay in the
premises till they are alive or cease to use the property as their
residence. Even in cases, where, due to accrual of interest till death of
both Senior Citizens i.e. self & spouse, total amount due to the Mortgagee
Organization exceeds the value of the mortgaged flat, no amount shall be
payable from other property of the borrowing Senior Citizens or their kith &
kin!
Obligations of borrowers:
i)Borrowers must continuously live in the mortgaged premises and not leave that for continuous 1 year or more and keep the premises in proper livable and saleable condition, keep them insured against fire, earthquake and other calamities.
ii)Continue to pay all taxes, maintenance charges,insurance, repairs & maintenance etc.
iii)Will not give away the premises on rent or by way of donation or gift or create in detail encumbrances etc or will not abandon or make any changes, which may affect the security of the premises.
iv)If the premises are declared by the government etc authorities as not fit for residence due to health or safety reasons or they desire to acquire for public purposes, the PLIs shall be
v)notified immediately.
vi)Borrowers shall not make any testamentary disposition of premises and if it is done, it would be subject to the mortgage created in favour of PLI. Will must clearly indicate that this property is subject to the discharge of the mortgage debt and heirs shall not be entitled to challenge the validity of the mortgage. PLIs may obtain a registered will in its favour stating that the borrowers have availed of RML from PLI on security by way of mortgage.
vii)Permit PLI to enter the premises for inspection, as and when necessary.
The above is only to give some idea about the new facility offered. Before
applying for RML, each Senior Citizen should assess his needs, make a
reasonable assessment of life expectancy and life style and approach the PLI
of his choice and discuss with PLI in detail, obtain detailed scheme and
then take his decision.