04 March 2008
BASED ON A SUCCESSFUL PRACTICE IN THE WESTERN COUNTRIES, THE GOVT. OF INDIA INTRODUCED REVERSE MORTGAGE . IN COMMON MAN'S LANGUAGE UNDER A REVERSE MORTGAGE , THE PROPERTY OF A PERSON ( AGE RESTRICTIONS AND CONDITIONS APPLY DEPENDING ON LENDERS) IS MORTGAGED TO A BANK OR LENDING INSTITUTION WHEREBY THE LENDER PAYS A FIXED MONTHLY INCOME EVERY MONTH TO THE MORTGAGER TILL THE DEATH OF THAT MORTGAGER.TO SOME EXTENT IT CAN BE COMMUTED AND A LUMPSUM IS ALSO PAYABLE IF THE LENDER AGREES. IN OHER WORDS A RETIRED OR OLD AGE PERSON WHO HAS NO OTHER SOURCE OF INCOME AND WHO HAS A DEBT FREE PROPERTY CAN MORTGAGE HIS PROPERTY TO A LENDER AND GET A FIXED MONTHLY INCOME TILL DEATH. ON DEATH OF THE MORTGAGER THE PROPERTY WILL VEST WITH THE LENDER WHO SELLS THE PROPERTY , SETTLE HIS LOAN AND PAY BACK SURPLUS IF ANY TO THE HEIRS. IN THE RECENT BUDGET PROPOSALS TABLED IN PARLIAMENT ON 29 TH FEB. 2008 , THE GOVT . PROPOSED TO REMOVE REVERSE MORTGAGE FROM THE DEFINITION OF TRANSFER UNDER CAPITAL GAINS AND ALSO PROPOSED TO EXEMPT THE MONTHLY INCOME FROM TAX . THE CONCEPT NEW TO INDIA AND INDIAN BANKS AND HOUSING FINANCE COMPANIES , IS A BLESSING TO OLD AGE PEOPLE AND THE RETIRED WHO HAVE NOBODY TO LOOK AFTER THEIR FINANCIAL NEEDS BUT HAVE A DEBT FREE PROPERTY. IT IS CALLED REVERSE MORTGAGE BECAUSE HERE THE LENDER WILL BECOME ULTIMATE OWNER OF A PROPERTY INSTEAD OF OF THE BORROWER WHO IN TRADITIONAL MORTGAGES WILL BECOME THE OWNER AFTER REPAYMENT OF A PROPERTY LOAN. THERE IS ANOTHER REASON FOR THE NAME BECAUSE HERE IS A REVERSAL OF FLOW OF MONEY FROM LENDER TO BORROWER JUST OPPOSITE IN A CASE WHEN WE TAKE A HOUSING LOAN AND REPAY BANKS MONTHLY. WHEN A PERSON OUTLIVES THE LOAN PERIOD UNDER A REVERSE MORTGAGE ,THE MONTHLY PAYMENTS STOP. BUT INTEREST ONE CONTINUES TO PAY TILL THE LOAN IS SETTLED , ON SALE OF THE PROPERTY. UNDER THE PRESENT RECOMMENDATIONS OF NATIONAL HOUSING BANK , ONE NEEDS TO BE OF THE AGE OF 62 YEARS TO BE ELIGIBLE FOR REVERSE MORTGAGE LOANS AND THE TENURE IS 15 YEARS PERIOD AS OF NOW.THOUGH CALLED A LOAN , IT IS NOT REPAYABLE BUT ADJUSTABLE AGAINST SALE PROCEEDS OF THE PROPERTY AFTER COMPLETION OF THE FIXED PERIOD/DEATH OF MORTGAGER.SURPLUS IF ANY IS PAID BACK TO THE MORTGAGER OR HIS/HER HEIRS. ONE ALSO HAS THE OPTION TO PREPAY THE LOAN AND OWN BACK THE PROPERTY. INTEREST WILL BE SLIGHTLY HIGHER. PROCESSING CHARGES AND PRE PAY CHARGES , DOCUMENTATION CHARGES ARE ALL NORMAL LIKE ANY HOUSING LOAN. R.V.RAO
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