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Friday, 3 June 2011

Lifelong Income for Senior Citizens:


यदी आप गुगल क्रोम इस्तेमाल करते हो तो हिंदी में पढ़ने के लिये इधर क्लिक किजीये. फायर फॉक्स आय इस्तेमाल करते हो तो भी शायद पढ़ सकेंगे। प्रयत्न किजीये।
During 2007, P. Chidambaram, then finance minister, announced a rather novel scheme called reverse mortgages, which promised to give senior citizens an income stream based on the value of property they owned. Reverse mortgages give them a chance to convert their one big asset, their home, into a regular income stream, without sacrificing its ownership.

Earlier loan tenure of maximum of 20 years, had been a drawback. After 20 years, the borrower will either have to repay or let the bank take possession (to be sold after the person’s death). During early 2010 bank-insurance company tie-up, combines annuity with reverse mortgage, which means the income stream will continue throughout the lifetime of a customer. Central Bank of India, which has tied up with Star Union Dai-ichi Life Insurance to launch an annuity product called Cent Swabhiman Plus, While reverse mortgages are exempt from tax, annuities are not.
This scheme is enforced by 25 nationalised banks and some of the financial institutes working in the field of house loan.  This is similar to an insurance policy of which premiums are paid by the banks and insurance companies. Premium is based on the commercial certain percentage of the monetary value of the mortgaged property. For this scheme only residential house is considered. This scheme is not applicable to any other property. It is not even applicable to commercial buildings. The property for this purpose must be valued over Rs. 500000.00 and the remainder life of construction must be over 20 years. For the purpose of working out annuity a fixed percentage of the monetary value of the property is considered as virtual loan paid to the owner. Two options are available. First option is in case of death of the annuity holder the premium paid by the insurance company is not considered as repayment of loan. However in second option this amount is deducted from the virtual loan. Amount of annuity amount is higher in first option than in the second option. Annuity plus 80% of additional profit over 6% received by the insurance company is paid to the annuity holder i. e. owner of the property and spouse. A typical table for age of the property holder, monetary value and annuity available is as under:-

Age in full years.
Commercial Value of house
Virtual Amount of Loan
Monthly Annuity for Option I
Monthly Annuity for Option II
60 to 64
Rs. 10.00 Lakhs
60%
Rs. 3209.00
Rs. 2191.00
65 to 70
Rs. 10.00 Lakhs
60%
Rs. 3737.00
Rs. 2267.00
Above 70
Rs. 10.00 Lakhs
70%
Rs. 5452.00
Rs. 2904.00
Note: Amount of annuity does not include additional amount if insurance company gains profit over 6% during a particular year i. e. 80% of profit over 6%.

Insurance company would consider this as a group insurance and charge applicable premium to the bank. Insurance company is responsible to pay the annuity amount to the annuity holder. In case annuity holder wish to repay the loan amount he/she is allowed to pay any time. However the annuity amount is paid by the insurance company during life of the annuity holder and his/her spouse till death. In case it is not paid during life of the annuity holder or his/her spouse the property shall be either auctioned or the successor shall pay the amount of virtual loan. Any excess amount received after auction shall be paid to the successors/heirs of the annuity holder.

There is one more option available. At the start of the scheme lump sum amount of 25 % of amount of virtual loan or Rs. 15.00 lakhs, whichever is less is available for medical expenses. This amount shall be considered as additional loan for the purpose of repayment. However, annuity payment shall not be affected.

During the scheme it is not advisable to repay loan amount. It is a common experience that value of money decreases with time. Therefore, refund at later date is always preferable.
Senior citizen possesing a residential house costing ove Rs. 5.00 lakhs and residual life over 20 years need to apply with following documents/enclusures:-
  • Enclosures :-
a.       Estimate / Land papers / Plans / Designs – approved by Municipal or Town Planning Dept
b.      Salary Certificate / IT-ST-Wealth Tax Assessment
c.       Partition / Gift / Sale Deed ?
d.      Duplicate papers ? In Vernacular Language ?
e.       Agricultural / Urban Land ?
f.        Proof of residence ? Guarantors ?
g.       Builders’ Credentials ?
Eligibility of Borrowers:
                   a.            Senior Citizen of India – above 60 years age
                  b.            Married Couples as joint borrowers
                   c.            Should be owner of a self-acquired, self occupied residential property (house or flat) located in India, with clear title of ownership
                  d.            Property should be free from encumbrances
                   e.            Residual life of property be at least 20 years
                    f.            Borrowers should use the property as permanent primary residence
  Nature of Payment : Any or Combination of the following:-
a.       Monthly, Quarterly, Half-Yearly or Annually
b.      To be decided with prior / mutual consent
                                     c.      Lump-sum payments in one or more tranches
                                    d.      Committed Line of Credit, with an availability period agreed upon mutually (Borrower and PLI), to be drawn down by SCB
                                     e.      Lump-sum may be conditional and limited to – for medical exigencies, home improvement, maintenance, up-gradation, renovation, extension of residential property – Option given to SCB
  Eligible End Use of Funds
                                     a.      Upgradation, Renovation and Extension
                                    b.      Home improvement, maintenance / insurance of residential property
                                     c.      Medical, Emergency expenditure for family
                                    d.      For supplementing pension / other income
                                     e.      Repayment of an existing loan taken ...
                                      f.      Meeting any other genuine need
                                     g.      NOT FOR ANY SPECULATIVE PURPOSES
  Right to Rescission
                                     a.      PLIs to maintain Customer friendly gesture
                                    b.      To follow international best practices
                                     c.      SCBs to be given three days time after finalisation of RML to cancel transaction
                                    d.      Even amount is disbursed, may be repaid
                                     e.      Interest for the period may be waived
  Closing: PLIs to provide in writing, a fair and complete package of RML and specimen documents covering all aspects
                                     a.      A tool kit with illustrations be prepared
                                    b.      Closing charges to be borne by SCBs
                                     c.      These are – Appraisal fees, Inspection fees, Verification charges by External firms, Title Examination fees, Legal charges, Stamp Duty and Registration Charges, Property Survey and Valuation Charges, etc...
  Settlement of RM Loan
                               a.            Loan becomes due and payable only when the last surviving borrower dies... Or would like to sell the home, etc...
                              b.            Amounts to include accumulated interest
                               c.            SCBs may settle dues without sale of asset
                              d.            Reasonable amount of time, say up to 2 months be provided to settle RML dues
                               e.            Balance / surplus, if any, after settlement of loan be passed on to the estate of borrower
  Pre-payment of RM Loan
                               a.            Borrower will have option to pre-pay the RML at any time during the loan tenor
                               b.            There will not be any prepayment levy / penalty / charge for such payments
  RM Loan Covenants/1
                               a.            SCB will continue to use the property
                               b.            Non-Recourse Guarantee = No negative equity – SCB will never owe more than net realizable value of the property…
                               c.            Loan Agreement – to be entered into
                               d.            SCB shall not make any testamentary (will) disposition of the property during loan is due
                               e.            Even if done, it is subject to the mortgage…
  RM Loan Covenants/2
                               a.            PLI may obtain a Registered Will
                               b.            Such Will, is the last “WILL” for availing RML and that no other Will be made again
                               c.            SCB to insure property against fire, earthquake and other calamities
                               d.            To pay all taxes, electricity charges, water charges and other statutory payments
                               e.            To maintain the property in good condition
                                 f.            PLI reserves the right to inspect property…
  Foreclosure
                               a.            PLI may foreclose the RML for defaults
                               b.            If SCB has not stayed for one year period
                               c.            If SCB fails to pay taxes or maintain or insure the property…
                               d.            If SCB declares himself bankrupt
                               e.            If property is donated or abandoned
                                 f.            If ownership changes, rented out, etc…
                               g.            In case of fraud or misrepresentation..
                               h.            Any statutory action by Govt for taking over the property for public use or for condemning asset
  Option to adjust Payments
                               a.            PLI has option to revise periodic or lump-sum payments or frequency or intervals on account of revaluation at every 5 years;
                              b.            Borrower is given option to accept above..
                               c.            If not acceptable, further payments will be stopped by PLI. Amount outstanding will attract interest at agreed rates;
  Counseling and Information to Borrowers
                               a.            PLI to observe / maintain high standards
                               b.            To disclose all terms without ambiguity
                               c.            To clearly explain all terms / conditions
                               d.            To suggest to SCBs to nominate relatives
                               e.            To counsel possible impacts/ intt. Changes
                                 f.            To counsel about possible price changes
                               g.            To specify all the costs associated with RML
                               h.            Take all possible steps to treat SCBs fairly
  References
                               a.            www.nhb.org.in ; www.domain-b.com ;
                              b.            www.google.com ; www.rediff.com
                               c.            www.reverse.org ; www.investorwords.com
                              d.            www.reversemortgage.org
                               e.            www.apnaloan.com for FAQs
                                f.            www.iloveindia.com/real-estate/reverse-mortgage.html ; www.financialexpress.com
                               g.            www.tapmi.org/paper1/rr.rtf
                               h.            www.thehindubusinessline.com
                                 i.            http://business.in.com/article/investment-guide-2011/reverse-mortgage-the-bank-pays-you-the-emi/21222/1

1 comment:

Jana said...

comment from Padmanabhan Rajesh on facebook:-
they are the visible gods to any person. they should give right to such options if they are not protected in aged state by their children. But the same should not be misused also to victimise the children.
Genuineness of each case should be investigated thouroughly if children are guilty such options can be exercised by parents. very great idea

My comments are as under:-

You are right. This should not be misused. However, I have not come across any parents punishing children even if children do neglect them. Therefore, at least in India this would not be misused.

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