I retired from the private sector in 2006 and have only my provident fund to take care of myself and my wife. My wife is also retired and has only her bank savings. I am considering taking a reverse mortgage on my 3BHK house to have some financial liquidity. How should I proceed? I own the house and repaid the home loan entirely while in service. I have no outstanding debt, no other source of income, as well as cannot give my house on rent.
A few banks, such as the National Housing Bank (NHB), State Bank of India (SBI), Punjab National Bank (PNB), Central Bank of India, Indian Bank, Andhra Bank, Dewan Housing Finance Limited (DHFL), LlC Housing Finance, Corporation Bank and Canara Bank offer reverse mortgage loans.
Given that India doesn't have a social security system, and as you have mentioned, you do not have any other asset to fall back upon, a reverse mortgage will give you some liquidity for unplanned expenses, such as a medical emergency.
That said, there are some major drawbacks to a reverse mortgage.
Given these drawbacks, you could consider selling the house and moving to a smaller one. Then, after paying capital gains tax, you could invest the surplus in a fixed deposit or a systematic withdrawal plan. Not only will your capital remain intact, but you will also earn interest income on your deposit.
Hina Shah, Certified Financial Planner CM
Ashok Dixit
I took a home loan in 2015. I have received some extra bonuses and want to prepay a part of my outstanding loan, but the bank is asking for penalty charges. Are they within their legal rights to ask for it? Also, they had given me a choice whether to increase the equated monthly instalment (EMI) tenure. I chose the former and informed them that I would want to repay the loan and asked whether they could reduce the EMI further. Should I change my bank?
The bank is within its legal right to levy a penalty if the prepayment penalty clause is included in your home loan agreement.
If you want to prepay your loan, consider how you would like to proceed, either by reducing the tenure or the EMI by paying a lump sum.
If you are planning to change your bank, consider the foreclosure charge and the processing fee you would pay to your existing and new bank, respectively. And also factor in the rate of interest.
Also, consider the tax benefits you are availing yourself under Section 80C for principal repayment and under sections 24, 80 EE, or 80 EEA for payment of interest on your home loan.
Uma S Chander, Certified Financial Planner CM