The story on reverse mortgage (Treasure House, October 2011) talks about annuities but not the amount to be repaid at the end of the loan tenure and other concurrent charges. My enquires with Central Bank revealed the following: The eligible loan amount is deposited with an insurance firm, which provides a monthly annuity, which is taxable. The bank levies a 5% charge on the annuity amount under bank charges. The bank does provide an option for a monthly instalment as loan, which is not taxable, but banks prefer the annuity route. The bank charges a processing fee of 1% of the loan amount, a registration fee for equitable mortgage (Rs 30,000 in Tamil Nadu) and valuation and legal fees.
There is also a provision for a reset every five years. An interest as high as 14% is charged on a daily compounded basis as well.
The scheme will be worthwhile only when interest rates as low as 5% are charged on a simple basis. The option to pay interest every month/quarter/six months/year may be given to the borrower so that the eventual liability is reduced.
G Ciswanathan, Chennai
BNS Ratnakar, general manager, Central Bank, has responded with the following: The NHB has already asked the CBDT to remove taxation on annuities while the bank has withdrawn the service charge of 5%. Also, the bank charges a processing fees of 0.15% and not 1%, with a cap of Rs 10,000. The present rate of interest is 12.75% and 12.25% for the two schemes available now. Legal and registration fees are not as per the Central Bank's discretion.
The back-to-back stories on stocks that gave huge returns (High Fliers and Crash Course, December 2011) clearly brings to the fore the vagaries of the stock market. While stocks like Unitech, Suzlon and Jai Corp, which not very long ago were the darlings of investors, have became some of the biggest wealth destroyers during recent years, some lesser favourites, such as Bata India and Gujarat Flurochemicals, gave huge returns in 2011. Given the uncertainties in the market, I think it is better for the common investor to go for fixed-income securities, which are giving decent returns at present. In this context, your cover package, which gives the various options for investment in fixed-income instruments, was timely. Though, with high inflation, the real rate of return might not be attractive. Yet, there is safety and growth of one's money. In the present market scenario, where uncertainties prevail in both domestic and global economies, there is every possibility of losing heavily in equities.
A Rajagopal, Mumbai