Reverse mortgages to finance your retirement

Reverse mortgages to finance your retirement?

Reverse mortgages to finance your retirement? A mortgage to finance your retirement sounds like eating doughnuts to lose weight. Shouldn’t retirement be the time to reap all the results for your life long hard work? Well if you have built a nice big retirement saving account, well done. However most people have not had the situation or means to plan a perfect life. Life got in the way with its various ups and downs, recessions, and college fees to pay. Your daughter’s wedding, well that got the last bit of your so-called retirement savings plan. What is more, even if you did have a nice retirement investment portfolio it is likely that the current crisis has dampened if not destroyed years of conservative investments.

However, what you might not have thought about is what is probably your most valuable (valued in dollars, that is) asset, your home. Couples nearing or in retirement often sit on a property worth hundreds of thousands of dollars while they live like paupers worrying and stressing about every services bill. Even in cases where the basic expenses are covered, couples will go for decades of the time of their life where they have more time without well deserved holidays or the odd treat.

This situation can be solved by getting a reverse mortgage. The beauty of reverse mortgages is that they are so flexible. If you are 62 or over, own your own home and have paid for it or have considerable equity (equity is the difference between the value of your home (market value) and the amount left to pay for it) on it, you are eligible.

If it is the first time you hear about these mortgages you might be surprised. This is how they work. You borrow either a lump sum, a line of credit, or receive monthly payments (nice change from PAYING monthly payments) and don’t pay a penny, cent or peso until you a) die, b) sell your home or c) leave it vacant for over 12 months (maybe due to going to a home or other care facility). The interest rates are low and banks cannot touch you until the above mentioned scenarios are completed. Even if you have to move banks will give you up to a year to make arrangements. Even if you die it does not necessarily mean that your family has to lose the home of their youth. They can refinance the home and keep it or sell it, pay for the reverse mortgage and keep the change. Of the three options detailed above the cheapest alternative is the line of credit. With this type of reverse mortgage you are given access to a pool of money you can use when and for what you want.

For obvious reasons this is not a solution or option for everyone, but if you are over 62 and have liquidity issues being able to live in your home until you “don’t need it anymore” and spend the money from its eventual sale, sounds very much like having your cake and eating it.

AUTO LOAN FAQ

Why is a credit profile important ?

To the financier your credit profile is the most important factor he will consider before funding you. Your credit profile tells him if you are able to and intend to pay back the loan to him.

What are the specific components of my credit profile ?

The components are age, profession or occupation, income and financials, previous credit history and your home, ie, if you live in a rented accommodation or in your own home.

What can I do if my credit profile does not match the financier's requirements ?

If your credit profile does not match the financier's requirement you can strengthen it by bringing in a co-applicant or guarantor who would be able to match the requirement.

How to improve your credit profile ?

If you are salaried and over 60 years of age it is unlikely that you will be financed based only on your profile, most financiers would insist that you bring an additional guarantor or co-applicant whose age is less than 60. It would be better for you to take one of your immediate relatives (son, husband, wife, daughter ) as co-applicant. The age limit for self employed is 65 years.

If you are self employed and your income is between Rs. 45,000 p.a. and Rs. 60,000 p.a., it is unlikely that you will be financed based only on your profile. Most financiers would insist that you bring an additional guarantor or co-applicant whose income added with yours is greater than Rs. 60,000 p.a. It would be better for you to take one of your immediate relatives (son, husband, wife, daughter ) as co-applicant. If you are salaried the minimum income is normally Rs. 100,000 p.a.

If you have been in employment for less than 1 year and total number of years in service is less than 3 years it is unlikely that you will be financed based only on your profile. Most financiers would insist that you bring an additional guarantor or co- applicant whose years in service match the requirement. It would be better for you to take one of your immediate relatives (son, husband, wife, daughter ) as co-applicant. If you are salaried the minimum income is normally Rs. 100,000 p.a.

How much finance are you eligible for ?

The quantum of finance you can get depends on your income, your ability to repay and the financier's LTV norms for the car.

What documents do I need to establish proof of income ?

For income, most financiers look at your IT returns for the last two years. Financiers also look at the nature of income. Some of them do not consider speculative income (especially from the stock market), rental or agricultural income. Some financiers discount such income by up to 50% in their workings.

What are the pre-conditions on the amount I earn and its relation to the amount of finance I can usually get ?

Generally, if you have an income of Rs. 60,000 p.a. not including speculative / non- recurring income, most financiers would fund you 80 % - 90 % of the value of a small car. Similarly, if you have an income of Rs 100,000 p.a., again, not including speculative / non-recurring income, most financiers would fund you 75 % - 85 % of a premium car.

Do loans previously taken play a role in determining the amount of finance I can get now ?

Yes they do. Fixed obligations such as an earlier loan or certain deductions in the case of salaried people are normally removed from the income by most financiers before determining the finance amount.

What are Negative Areas and Negative Credit Profiles ?

Most financiers have an internal list of geographical areas and professions / business/ companies that are created based on their previous credit experience. Loans for customers from such areas or with such profiles may be rejected or may be more closely scrutinised before approval.

Can I get car finance without submission of income documents ?

Yes, you can, under the No Income Proof scheme offered by some financiers.

Can I get finance for accessories ?

Most financiers do not finance accessories other than those which are factory fitted like air-conditioners. Some may fund music systems and such other expensive accessories.

Can I get finance for Insurance and Registration ?

Most financiers do not fund insurance and registration. The LTV is worked out on the ex-showroom price of the car and does not include insurance and registration charges.

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Interest Rate

What is the difference between a Flat interest rate and a Reducing Balance interest rate ?

Take a simple example. Suppose you have taken a loan of Rs. 5 Lakh at 10% interest. You repay Rs. 25,000 in the first instalment. If the 10% interest continues to be applicable on Rs. 5 lakh after your first repayment, you are paying a "Flat Interest Rate". But, if 10% interest is applicable now on Rs 4.75 Lakh, you are paying a "Reduced Balance Interest Rate".

What is a 0% interest scheme ?

In this scheme you are not charged any interest. You only pay back the principal amount. However, be careful to check out the hidden costs under such schemes. There are some disadvantages in this scheme - the amounts financed are low and the tenure is short.

Why is the interest rate higher for a used car ?

A used car carries a higher Asset Risk than a new car. Therefore, interest rates on used car rates are higher.

Is it better to go to my current financier ?

Yes, if you have a very good repayment record for an earlier transaction, you are most likely to get a lower lending rate. Even your loan processing could be faster. However, do check out some competitive offers before taking a final decision.

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Repayments

What is a default ?

Repeated prolonged delays and dishonoured cheques are deemed to be defaults in repaying your loan. Most financiers would expect you to turn in the asset on request, failing which they may seize your car, after serving you proper notice.

What happens if my cheque bounces ?

Dishonouring a cheque is a criminal offence. Legal proceedings may be initiated against you. Your credit profile could be seriously damaged.

What happens if I delay some instalments ?

You are advised not to delay your instalments because frequent delays may affect your credit profile and might make further borrowing difficult and costly. However, under rare circumstances, if you delay an instalment, most financiers would charge you a delayed payment charge, which could be as high as 3 %, compounded monthly. This could be twice the rate at which you borrowed.

Can I get a temporary relief from paying my instalments ?

Yes, in some cases you can, if you inform your financier in advance. This should only be for a few days and you will have to pay delayed payment charges.

Can I Pre-close or Pre-pay a loan ?

Yes, you can, but conditions apply. Please refer the section on Pre-Closure.

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Insurance

What happens if the car meets with an accident ?

In the event of an accident you will have to inform your insurance company /agent. They will send an assessor to assess the damage to the car. The insurance company will process your claim and pay it directly to the financier, unless you have taken an NOC from the financier, in which case the payment will be made by the insurance company in your favour. The financier will normally give an NOC if you are regular in your payments. In case of a complete loss, the financier would receive the payment directly from the insurance company.

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General

What is an Exchange Scheme ?

Some dealers may offer you an exchange scheme whereby your existing car can be upgraded to a new one. The dealer will purchase your car at a price depending on the model, year and the condition of the car. The value of your old car is then adjusted against the purchase price of the new car. You could also get the balance amount financed.

Can I sell the car during the tenure of the finance contract ?

No, you cannot sell the car unless you repay the loan. An NOC is required from the financier before you can sell the car.

What happens when the loan is fully paid off ?

After the loan has been fully paid off, the financier will issue Form 35 with a covering letter (NOC) to the RTO for cancelling their name from the R/C book. A similar NOC will be issued to the insurance company requesting for the deletion of their name from the policy.

What is De-Dupe ?

Most financiers have compiled a list of defaulters, their own, as well as from other available sources. Details of all clients are run through this list to check if the same client had applied for a loan and if yes, the file is rejected.