Assets Based Financial Services

8/4/2019 Assets Based Financial Services

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Reverse Mortgage

Presented ByNavin Sonara


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A reverse mortgage (or lifetime mortgage) is a loan available to senior citizens.

Reverse mortgage, as its name suggest, is exactly opposite of a typical mortgage, such

as a home loan.

A typical of mortgage in which a homeowner can borrow money against the value of

his or her home.

Reverse mortgage, the borrower creates a charge over the property owned by him in

favor of the financing institution and receives periodical stream of payment.

No repayment of the mortgage (principal or interest) is required until the borrower

dies or the home is sold.


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How does it work?

In a typical mortgage, you borrow money in lump sum right at the

beginning and then pay it back over a period of time using Equated

Monthly Installments (EMIs).

In reverse mortgage, you pledge a property you already own (with no

existing loan outstanding against it). The bank, in turn, gives you a seriesof cash-flow for a fixed tenure. These can be thought of as reverse EMIs.

Simply put, any senior citizen, opting for reverse mortgage will get

annuity (the reverse EMI) from the bank. After that, the annuity

payments stop. However, they can continue to live in the house.


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The Features of this Loan

Any house owner over 60 or more than 60 years of age is eligible for a reverse

mortgage.

The maximum loan is up to 60% of the value of the residential property.

The borrower can opt for a monthly, quarterly, annual or lump sum payments at

any point, as per his discretion.

Monthly payments are set up as a Tenure payment. Borrower receive them for

the rest of their lives no matter how long they live.

The amount received through reverse mortgage is considered as loan and notincome; hence the same will not attract any tax liability.

Reverse mortgage rates can be fixed or floating and hence will vary according to

market conditions depending on the interest rate regime chosen by the borrower.


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What happens after the death of one or both of the

spouses?

If one of the spouses dies, the other can still continue living in thehouse. If both die, the bank will give their heirs two options settle the

overall outstanding loan and retain the house, or the bank will sell the

house, use the proceeds to settle the outstanding loan and give the rest

to the heirs.


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How is the loan paid?With a reverse home mortgage, no payments are made during the

life of the borrower(s). Since no payments are made during the term of

the reverse home mortgage loan, the loan balance rises over time.

In most areas where appreciation is good, the value of the home

grows at a much faster rate than the loan balance. Therefore, the

remaining equity continues to grow.

When the last borrower passes, or it is decided to sell the home and

move, the loan becomes due. The ownership of the home is then

passed to the estate or directed by a living will or will to the

beneficiaries.

The beneficiaries now own the home and have to sell the home or

pay off the loan. If the home is sold, the reverse home mortgage lender

is paid off and the beneficiaries keep the remaining equity of the home.


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Loan to value ratioLoan to value ratio means the percentage of loan that you will get for

the value of the property that you pledge. The typical rate loan to

value ratio is 60 per cent.

So, for e.g., if you pledge a property worth Rs 60 lakh, then the loan

amount that you can get is Rs 36 lakh.


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This scheme is not so popular Recent reports seem to indicate that a very small percentage of

senior citizens only seem to have taken advantage of the facility since

its inception. This could be perhaps because better awareness had

not been created about the product.

The product is still evolving and may take on new dimensions

depending on how the banks wish to present its consumer appeal.


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Educational Loans


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Aim is to provide financial support from the banking system to deserving students forpursuing higher education in India and abroad.

All banks are offering educational loans, but the scheme differs from bank to bank.

Eligibility:-The student should be Indian national and should have secured admission toprofessional/technical courses through Entrance Test/Selection process or should havesecured admission to foreign university/institutions.He/She should have scored minimum 60%(50% for SC/STs) in the qualifyingexamination for admission to graduation courses.

Eligible Courses:-In India- School education including Plus 2 stages. Graduation Courses and PostGraduation Courses.Abroad- Graduation, for job oriented professional /technical courses offered by reputeduniversities, Post graduation, MCA, MBA, MS etc. courses conducted by CIMA- London,

CPA in USA etc.

Quantum of Finance:-Need based finance subject to repaying capacity of the parents /students with marginand the following ceilings.In India- Maximum Rs. 7.50 lakh

Abroad- Maximum Rs. 15 lakh


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Security:-Up to Rs. 2 lakh- no securityAbove Rs. 2 lakh- Collateral security equal to 100% of the loan.

Margin:-

Up to Rs. 2 lakh- NilAbove Rs. 2 lakh- In India- 15%

Abroad- 20%Rate of Interest:-Up to Rs. 2 lakh- PLRAbove Rs. 2 lakh- PLR + 1%

Repayment:-Course period + 1year or 6month after getting job, whichever is earlier.The loan has to be repaid In five to seven years from commencement of repayment.


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Automobile Loans


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Bank are extending credit for purchase of new two/four wheeler forpersonal/professional use.Bank finance is also available for purchase of used cars less than three years old.

Eligibility:-

Permanent employees of State/Central Government/Public/Private JointSector/Firms/Educational Institutions.

Professional/self-employed individuals who is an IT asssessee.

Persons engaged in agriculture and allied activities.

Salaried borrower with remaining or sufficient service to liquidate the loan one year priorto retirement.

Salary I credited to SB/CD account at bank and irrevocable letter obtained fromemployer to remit installments to bank till liability is liquidated.

Finance can also be extended to firms/companies.

All new accounts w.e.f 01.04.2004 are subject to scoring models as prescribed in IC6853 dated 20.04.2004 and should fall under minimum investment grade of 40% marks.

The borrower should be 18years and above.

Q f Fi


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Quantum of Finance:-The maximum amount of loan is limited to three times of net income/net annual salarysubject to a maximum of Rs. 10 lakh.

Margin:-

20% on the cost of vehicle -new vehicles. In used vehicles- less than 3years old themargin requirement is 50%.Wherever the loan is given under an institutional tie up, the margin is further reduced to10%.

Rate of Interest:-

Under tie-up arrangement for cars- up to 3years over 3years, 9%Not Under tie-up arrangement for cars- 9%, over 3years: 9.5%Under tie-up arrangement for two wheelers- 9%, above 3years: 9.5%Not Under tie-up arrangement for two wheelers- 9%, above 3years: 10%

Bank Charges:-

Rs. 276 for two wheelersRs.551 for a loan up to Rs. 2 lakhRs.1102 for a loan above Rs. 2 lakh

Repayment:-Two wheelers-36EMIs

Four wheelers- 60EMIs


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Discounting/Purchase of

Cheques

Wh i d f th th t b k t


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When a persons are in need of money, then they may request bank todiscounting/purchase the cheque and credit the proceeds to their account.

If the cheque is discounted, the discounted value i.e. the face value of the cheque minusbanks charges like interest, postages, handling charges etc. will be credited to the

account.

When purchasing the cheque, the face value will be credited to the account and theinterest and other charges will be debited to the account as and when the cheque isrealised.

Discounting/Purchasing of cheque is a credit facility.

When the bank discounting/purchase the cheque, they open a loan account in the nameof the customer who deposited the cheque and debit the value of the cheque to thataccount.

They then send the cheque for collection to their branch at the centre where the chequeis drawn. If the bank is not having a branch, they will send the cheque to their agencybank.

When the cheque is realised, the branch/agency bank will send the proceeds to thebranch from where they received if after deducting their charges.

O i t f thi dit th b h dit th t t th l d l th


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On receipt of this credit, the branch credits the amount to the loan and close theaccount.

The charges and interest are collected from customers.

In the case of foreign currency cheque, conversion of foreign currency into domesticcurrency becomes necessary.


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Assets Based Financial Services

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