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For the benefits of senior citizen it was proposed that the National housing bank will introduce a ' reverse mortgage'. I want to know its concept and also its benefits how does it work ???
For the benefits of senior citizen it was proposed that the National housing bank will introduce a ' reverse mortgage'. I want to know its concept and also its benefits how does it work ???
Mr. Sharma, a central government retiree, has been living with his wife in an independent home for the last 35 years. His two sons, both settled in New York, have no intention of moving base to India. Husband and wife, well past in their sixties do not wish to live with their sons in a foreign country. Mr. Sharma, a heart patient and his wife a diabetic, have a substantial monthly medical expenditure. Not satisfied with his pension, and not wanting to depend on his sons, for household expenditure as well as medical care, he approached his bank for a solution. The bank advised him to opt for Reverse Mortgage, to ease his monthly expenses.
In simple terms, a reverse mortgage is the "opposite" of a conventional home loan. A reverse mortgage enables a senior citizen to receive a regular stream of income from a lender (a bank or a financial institution) against the mortgage of his home. The borrower (i.e. the individual pledging the property), continues to reside in the property till the end of his life and receives a periodic payment on it.
When the home is pledged, its monetary value is arrived at by the bank, on the basis of the demand for the property, current property prices, and the condition of the house. The bank then disburses a loan amount to the borrower in the form of periodic payments, after considering a margin for interest costs and price fluctuations. The periodic payments also known as reverse EMI are received by the borrower over fixed loan tenure. With each payment, whether monthly or quarterly, the equity or the individual's interest in the house decreases.
A reverse mortgage is an ideal option for senior citizens who require regular income, or if the property is of illiquid nature for some reason.
A reverse mortgage loan becomes due when the last surviving borrower dies, or if the borrower chooses to sell the house. The bank first gives an option to the next of kin to settle the loan along with accumulated interest, without sale of property. If the next of kin is unable to settle the loan, the bank then opts to recover the same from the sale proceeds of the property.
Any extra amount, after settlement of the loan with accrued interest and expenses, through the sale of the property, will be passed on to the legal heirs. If the sale proceeds are lower than the accrued principal plus interest amount, the loss is borne by the bank. This loss could happen in cases where the banks original estimation is not in line with the real estate market movement.
A reverse mortgage loan becomes due when the last surviving borrower dies, or if the borrower chooses to sell the house. The bank first gives an option to the next of kin to settle the loan along with accumulated interest, without sale of property. If the next of kin is unable to settle the loan, the bank then opts to recover the same from the sale proceeds of the property.
Any extra amount, after settlement of the loan with accrued interest and expenses, through the sale of the property, will be passed on to the legal heirs. If the sale proceeds are lower than the accrued principal plus interest amount, the loss is borne by the bank. This loss could happen in cases where the banks original estimation is not in line with the real estate market movement.
@HammadRashid very well explained. Kindly explain one more thing "restructuring of loan" I read this many times. Source- " for settlement of NPR banks r now doing restructuring of loan. ...Some thing some thing.... some banks have sold certain % of thier Npr to assets restructuring companies" Why???
2nd query- why public banks r short of capital why do they everything ask money frm govt (basel 3 k time b they say the same thinh)
Restructuring Suppose Company A have taken loan of Rs. 100 from bank in 2015 and will have to repay Rs. 25 each in year 2016, 17,18, 19, However if Company due to week financial condition not able to pay Rs. 25 in 2016, but only Rs. 20, then this loan will become NPA for Bank. In such condition bank can change the installments (restructure the loan) such a way that Company will able to pay, like 5 installment of Rs. 20 each in 2016,17,18,19,20.
Some time bank sold these loan to ARC like they will take Rs. 90 from ARC & give the right to collect loan.
2nd query- lets say a Bank gave loan Rs. 100 to various borrower, out of this Rs. 92 is the money deposited by common people & Rs. 8 is bank's own money. now suppose if bank only able to recollect Rs. 90. then they will only able to return Rs. 90 to common people. That's why basel norms said that bank should increase their own money from Rs. 8 to Rs. 10-12. so that in the case of loss common people money remain secured. Banks want this money from govt.
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Comments
Umm i referred investopedia site it did not work for me so thought someone here could explain it in simple words ...
Mr. Sharma, a central government retiree, has been living with his wife in an independent home for the last 35 years. His two sons, both settled in New York, have no intention of moving base to India. Husband and wife, well past in their sixties do not wish to live with their sons in a foreign country. Mr. Sharma, a heart patient and his wife a diabetic, have a substantial monthly medical expenditure. Not satisfied with his pension, and not wanting to depend on his sons, for household expenditure as well as medical care, he approached his bank for a solution. The bank advised him to opt for Reverse Mortgage, to ease his monthly expenses.
In simple terms, a reverse mortgage is the "opposite" of a conventional home loan. A reverse mortgage enables a senior citizen to receive a regular stream of income from a lender (a bank or a financial institution) against the mortgage of his home. The borrower (i.e. the individual pledging the property), continues to reside in the property till the end of his life and receives a periodic payment on it.
When the home is pledged, its monetary value is arrived at by the bank, on the basis of the demand for the property, current property prices, and the condition of the house. The bank then disburses a loan amount to the borrower in the form of periodic payments, after considering a margin for interest costs and price fluctuations. The periodic payments also known as reverse EMI are received by the borrower over fixed loan tenure. With each payment, whether monthly or quarterly, the equity or the individual's interest in the house decreases.
A reverse mortgage is an ideal option for senior citizens who require regular income, or if the property is of illiquid nature for some reason.
A reverse mortgage loan becomes due when the last surviving borrower dies, or if the borrower chooses to sell the house. The bank first gives an option to the next of kin to settle the loan along with accumulated interest, without sale of property. If the next of kin is unable to settle the loan, the bank then opts to recover the same from the sale proceeds of the property.
Any extra amount, after settlement of the loan with accrued interest and expenses, through the sale of the property, will be passed on to the legal heirs. If the sale proceeds are lower than the accrued principal plus interest amount, the loss is borne by the bank. This loss could happen in cases where the banks original estimation is not in line with the real estate market movement.
Kindly explain one more thing "restructuring of loan" I read this many times.
Source- " for settlement of NPR banks r now doing restructuring of loan. ...Some thing some thing.... some banks have sold certain % of thier Npr to assets restructuring companies"
Why???
2nd query- why public banks r short of capital why do they everything ask money frm govt (basel 3 k time b they say the same thinh)
Suppose Company A have taken loan of Rs. 100 from bank in 2015 and will have to repay Rs. 25 each in year 2016, 17,18, 19, However if Company due to week financial condition not able to pay Rs. 25 in 2016, but only Rs. 20, then this loan will become NPA for Bank. In such condition bank can change the installments (restructure the loan) such a way that Company will able to pay, like 5 installment of Rs. 20 each in 2016,17,18,19,20.
Some time bank sold these loan to ARC like they will take Rs. 90 from ARC & give the right to collect loan.
2nd query- lets say a Bank gave loan Rs. 100 to various borrower, out of this Rs. 92 is the money deposited by common people & Rs. 8 is bank's own money. now suppose if bank only able to recollect Rs. 90. then they will only able to return Rs. 90 to common people. That's why basel norms said that bank should increase their own money from Rs. 8 to Rs. 10-12. so that in the case of loss common people money remain secured. Banks want this money from govt.