A sufficiently large corpus to meet expenses, a cosy home and peaceful existence are what most people want for their sunset years. With a well-executed retirement plan, it shouldn't be difficult to achieve these goals.
But what if you are left sitting in the dining room of your house with a piece of paper and pencil trying hard to figure out ways to meet your regular expenses or a medical exigency? In such a case, a reverse mortgage loan can unlock the value of your house and provide a tax-free income.
"Normally, around 50% of a person's lifetime savings are spent in building a house and most old people don't have any retirement plan or social security. If they need money, they need to sell the house. Reverse mortgage is a tool where senior citizens can liquidate the equity without having to sell it," says P.R. Jaishankar, assistant general manager, National Housing Bank (NHB), a Reserve Bank of India subsidiary, which created guidelines for the product in India.
In a reverse mortgage scheme, a bank offers a loan to an elderly individual or couple against a residential property owned and occupied as their permanent home. The borrowers get the money as a lump-sum payment or in instalments. The amount can be used to supplement their income and meet other expenses, but cannot be used for business or speculative purposes.
Your house as an ATM
When I took VRS in 2001, my retirement benefits added up to Rs 22 lakh. At that time, this looked like a lot of money, especially since I had already taken care of big-ticket expenses, such as my children's education and building a house.
But Rs 22 lakh is not such a big sum if you have to repay a Rs 12 lakh loan taken for your children's weddings. After I settled all my loans, I was left with Rs 10 lakh, which was invested in fixed deposits and annuities. But the Rs 9,000 a month I received from these investments was not sufficient to run the household and retain the lifestyle I had got used to as a general manager in a PSU.
You might have seen the advertisment from an insurance company, which shows a retired person trying to cut down on household expenses. He refuses point blank when his wife suggests that they ask their children for money. However, I had no option but to seek financial assistance from my children who had settled abroad. But they had families to support and other commitments.
We were dipping into our reserves. The first glimmer of hope came in 2007, when the government announced the reverse mortgage scheme. I applied for the reverse mortgage of my apartment in Delhi through the Punjab National Bank in 2008. My 1,000 sq ft apartment was valued at Rs 60 lakh and the bank agreed to pay me Rs 40 lakh over the next 15 years.
The monthly instalment worked out to Rs 9,600, enough for us to live comfortably. The house has become my retirement plan. Now my wife and I don't have any financial worries. And yes, if she now suggests I take monetary help from our children, I too shall stoutly refuse.
Madan Gopal Mathur 67, Delhi