REVERSE MORTGAGES

Banks and housing finance companies are reading themselves to bring out their reverse mortgage products. We all know that reverse mortgage will enable senior citizens to mortgage their property with a bank / finance company and receive monthly payments. At the end of the term or the death of the person opting for the reverse mortgage the
bank / finance company is free to sell the property to realise the amount due to them. B ut since the concept is new to India, a number of issues will need to be clarified so that senior citizens are able to take a call. We explain how to scheme will work and the grey areas-perticularly taxation that will need to be sorted out.

FIRST THINGS FIRST

The first step, quite obviously is to knock on the doors of a bank or housing finance company and express willings to pledge one's home for the reverse mortgage scheme. The HFC will access the value of the house by independent valuation. Then the HFC will arive at the loan amount depending upon the age of the person opting for the reverse mortgage and prevailing intrest rate. However the loan amount will be on the basis of current value of the property and not an possible future appreciation. Currently, as per industry estimates the loan-to-value ratio is fixed at 45-60% of the value of the property based on the age.

KNOW YOUR TENURE

Age is the most influential factor in deciding the monthly payments than the borrower will receive monthly payment will be higher for older persons because the loan amount will be compressed into a fewer number of years. For example, if you are 75 years old the HFC may not lend for 15 years but only for 10 years.

THE IDEAL CANDIDATE

As per the scheme conceptionalised by the national Housing bank a senior citizen of 62 years or more who owns a house is a ideal candidate.

The bank / HFC will extend a loan upto a fixed amount worked out on the percentage basis of the market value of the house owned. As a borrower you can opt for monthly EMI or periodic payments or line of credit. In case of EMI the lent amount will be spread over 15 years

You can also opt for lump- sum amount (with a reduced number of installments) to meet contingencies. Such as medical treatments and so on. The spouse will be a co-borrower of the loan. This will give him/ her the right to live in the house after the death of the borrower and get monthly payment till he / she continues to live.

THE LONG LIFE CONUNDRUM

Its quite possible that the borrower may outlive the maximum tenure for which the loan is extended. In such a case the payments made to the borrower will stop after 15 years' the intrest will keep accumulating till settled by the HFC only after the last owner's death. The industry is also considering an insurance mechanism to deal with the cost arising out of such an eventuality.

The settlement of the outstanding loan amount along with accumulated intrest will be met from the sales proceeds.

SOME TAX HAZE

Globally, reverse mortgages is treated as tax free equity. In India clarityis required especially regarding tax-treatment, accounting legal and regulatory aspects say industry experts. If a borrower opts for monthly installment the amount received would be receipt of loan amount in installments. From income tax point of view, the installments could be treated as loan advance and not income. So it cannot be taxed. ? said senior banker not willing to be quoted.

Tax experts also say that the house is just ? mortgages' and not ? sold? Hence the loan installments cannot be subject to capital gains tax either. This questions would arise when the house is finally sold. At the time the amount of capital gain or loss will be compated as provide in section. As of the income tax act in the hands of the borrower or his heirs, depending upon the situation.

WHAT COST FOR A FRESH COAT ?

The bankers say that the borrower will have to meet the renovation costs from the loan amount given under the scheme. Industry servces say the reverse mo0rtgage scheme is still at a conceptual stage and only one provide player is offering it. So there are many gray areas which need to be addressed. However it is unlikely that a senior citizen can get a home improvement extension loan.

More info on your stop foreclosure information search:

Get Free Foreclosure Advice and Free Refinance Quotes
Get your free on-line foreclosure refinance quote and free advice from foreclosure mitigation specialist in minutes. Compare real offers from top national subprime and hard money lenders... more...

What to Really Expect When Buying A Bank Owned Property
In recent years, most new buyers wanted to buy a new home from a homebuilder. Today, nearly every buyer I pre-qualify today says the same thing. ?I want to buy a bank-owned property.? In some counties around the country, foreclosures are at all-time highs. As a result, in today's market, the best ... more...

Century 21 Real Estate - Tips For Buying Bank Owned Foreclosures From Realtors
Century 21 Real Estate is a worldwide organization offering residential and commercial real estate. Century 21 Realtors are independent agents who either own a franchise office or work as a representative for the franchise owner. With the abundance of foreclosure properties, many Century 21 ... more...

Investing In Bank Owned Foreclosure Properties
Are you a new investor? If so, you have probably taken the first steps to being a successful investor. Now you are ready to take the final steps finding property and investing. Bank owned foreclosure property should be on the top of your list. This particular property is owned by the bank and is ... more...

Invest In Foreclosures Bank Owned
Smart real estate investors make more than decent income by investing in foreclosures bank owned homes or real estate properties. You could do the same too. Investing through foreclosures bank owned can be a lucrative way to make a living. Distress sales coming off bank foreclosures often represent ... more...