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WOULD YOU LIKE TO LIVE BETTER TODAY, AND

BE MORE PREPARED FOR THE FUTURE?

A REVERSE MORTGAGE could help


A Reverse Mortgage is a unique loan that
enables senior homeowners (62+) to convert part
of the equity in their homes into tax free income
without having to sell the home, give up title, or
take on a new monthly mortgage payment.
A reverse mortgage is a loan against your home
that you do not have to pay back for as long as
you live in the home
A reverse mortgage can help you access cash
based on the value of your home without you
having to make monthly mortgage payments
and can help you better manage your financial
future
A GOLDEN WALKING STICK FOR
SENIOR CITIZEN
How Reverse Mortgages Work
If you are like most people, you purchased your home with a
regular (or forward) mortgage. With a forward mortgage, you
borrow money from a lender, make monthly payments to pay
down the balance (principal and interest), and steadily build
equity in the home. Over time, your debt decreases and your
home equity increases, and when the mortgage is paid in full,
you have full equity and own the home outright. If you are
considering purchasing your home using a forward mortgage,
try using a tool like a mortgage calculator to research the
various mortgages available.
In contrast to the aforementioned forward-mortgage, a reverse
mortgage works differently. Instead of making monthly
payments to a lender, a lender makes payments to you, based
on a percentage of the value in your home. You choose
whether the cash is paid as a single lump sum, a regular
monthly cash advance, a line of credit (where you decide when
and how much to borrow), or a combination of these methods.
Throughout the life of the reverse mortgage, you keep title to your home,
which acts as security for the loan. You are charged interest only on the
proceeds you receive, and both fixed and variable interest rates are available.
Most reverse mortgages are variable interest rate loans tied to short-term
indexes, such as the 1-Year Treasury Bill or the London Interbank Offered
Rate (LIBOR), plus a margin that can add an extra one to three percentage
points. Any interest compounds over the life of the reverse mortgage until
repayment occurs.

As the loan progresses, your debt increases while your home equity decreases.
When you move, sell the home or pass away, the lender sells the home to
recover the money that was paid out to you. After lender fees are paid, any
equity left in the home goes to you or your heirs. If you receive more payments
than your home is worth (if you outlive the loan), you will never owe more
than the value of the home, according to the Federal Trade Commission.

Note: A reverse mortgage can become due if you fail to meet the obligations of
the mortgage. For example, if you fail to pay your taxes and/or insurance, or if
the property falls into disrepair. With this new mortgage, you remain
responsible for paying property taxes and insurance and maintaining your
home.
THE UNIVERSE OF MORTGAGE LENDING HAS
GOTTEN TO THE POINT WHERE THERE IS A
PLACE IN IT FOR EVERYBODY
ADVANTAGES
No monthly payments due during length of the loan. All
accrued monthly costs such as mortgage insurance
premiums, interest charges, and lenders service fees are
due when the loan is paid off.
As the owners age increases and the home equity
increases, the amount that can be borrowed increases
Homeowners can keep the title to their homes until they
pass away, move, sell their home, or reach the end of their
loan term.
Income from a reverse mortgage is not taxable.
You are able to receive payment in several different ways.
The value of the house, not the homeowners current
income is used to determine eligibility.
Lenders cannot go to your heirs for repayment of your loan
if the house sells for less than what was borrowed.
THERES IS NO SUCH THING AS A FREE
LUNCH
DRAWBACKS
Lengthy documentation procedure. Banks require various
documents of the property. For a senior citizen this
procedure could be tedious, complicated and difficult to
understand.
Fixed monthly amount: the monthly payouts are fixed.
There is no provisions to increase this amount in case of an
emergency or contingency.
In some cases borrowers will have to give an undertaking
that they will not remarry during the currency of the loan.
if the borrower chooses to remarry, the loan will be fore
closed.
Residential property cannot be rented out fully or partly.
High rate of interest compared to other loans.
premium of insurance of mortgaged property to bank shall
be paid by borrower regularly
STEPS TO GETTING A REVERSE MORTGAGE

If you decide a reverse mortgage is the best solution for


you, the process involves:
Education understand the loan and the process
Appraisal determines the current market value of your
home
Underwriting when the loan file is reviewed
Closing when the loan documents are signed and you
determine how you want to receive your loan proceeds
CASE STUDY

ILLUSTRATION
Mr. Raheja purchased a house property in 1974 for Rs 2 lakhs and its
FMV as on 1.4.1981 is Rs5 Lakhs. Mr. Raheja had mortgaged the
property to a bank in a reverse mortgage scheme and has received
loan of Rs 40 lakhs on the property. Interest thereon amounted to Rs
10 lakhs and the total loan and interest outstanding is Rs 50 lakhs.
Case-1: Mr. Raheja discharges the loan of Rs 50 lakhs to the bank
and sells the Property for Rs 90 lakhs on 1.12015. Capital gains in
the hands of Mr. Raheja in Assessment Year 2015-16 shall be:
Sale price Rs 90 lakhs
Cost of acquisition Rs 5 lakh*1024/100
Case-2: Mr. Raheja dies and his son Mickle discharges the loan of Rs
50 lakhs to the bank and sells the property on 1.1.2015 for Rs 90
lakhs. Here, the case of R.M. Arunachalam (SC) shall apply and
the capital gains in hands of Mickle in Assessment Year 2015-16 shall
be:
Sale price Rs 90 Lakhs
Cost of acquisition Rs 5 Lakhs* 1024/100
Cost of improvement as per R.M. Arunachalam Rs 50 Lakhs
SAMPLE FORM OF REVERSE
MORTGAGE
SBIRM.pdf
REVERSE MORTGAGE SCHEME IN
NUTSHELL
Conceptually, Reverse Mortgage Scheme inter-alia
involves the following: Senior citizen borrower
mortgages the house property to a lender. The
lender makes the periodic/ lump sum payments to the
borrower during the latter's life time.
The borrower is not required to service the loan during
his life time and therefore, does not make monthly
repayments of principal and interest to the lender. On the
borrowers death or on the borrower leaving the house
property permanently, the loan is repaid along with the
accumulated interest, through sale of the house property.
The borrower/ heir(s) can also repay or prepay the loan with
accumulated interest and have the mortgage released
without restoring to sale of the property.
THANK
YOU
YOU HAVE
INVESTED A
LIFE TIME
IN YOUR
HOME, NOW
REAP THE
REWARDS
WITH AN
INSURED
REVERSE
MORTGAGE
LOAN,
WHILE
RETAINING
THE TITLE
TO YOUR
HOME AND
NO
MONTHLY
MORTGAGE
PAYMENTS
ARE
REQUIRED