The number of Indians with a net worth of Rs 1 crore has grown exponentially in the past decade. But you won’t find these crorepatis zipping around in flashy cars or splurging at shopping malls. That’s because for many of these crorepatis, the biggest chunk of their wealth is lying locked as the property in which they live. They may have an eight-figure net worth but their monthly income is in four figures. Madan Gopal Mathur, 67, is among the asset-rich but cash strapped property owners.
But three years ago, this retired PSU manager found the key to unlock the value of his property when he reverse mortaged his 1,000 sq ft apartment in Delhi. Reverse mortgage is just the opposite of a home loan. In a loan, a person buys property with money given by the bank and repays it with EMIs.
In reverse mortgage, the bank starts giving the owner a monthly payment as a loan against his house. The owner can borrow up to 75% of the value of the property. After his death, his heirs have to repay the reverse mortgage loan taken by him against the property. “It acts as a forced saving for the owner’s children,” says Mathur. What’s more, the house is revalued every five years and the borrowing limit is accordingly revised.
In 2007, his house was valued at Rs 60 lakh and he was allowed to borrow up to Rs 40 lakh against it over the next 15 years. The EMI was fixed at Rs 9,600. The move helped Mathur more than double his monthly income from Rs 9,000 to Rs 18,600. “The government’s decision to introduce reverse mortgage is a godsend for retirees like me," he says.
Till then, Mathur was facing difficulties trying to make ends meet. After taking voluntary retirement in 2001, he found that his nest egg of Rs 22 lakh was not as big as it appeared. A good chunk went into repaying loans and he was left with Rs 12 lakh which he invested in a few insurance plans for annuity income.
“It was difficult to manage the household with the Rs 9,000 I got as annuity,” he says. Mathur tried different options to supplement his income. Since he had a financial background (he had retired as general manager, finance, of Bhel), he started selling life insurance. But he could not keep up with the pace required for the job. He also had to travel long distances to explain the policies to prospective clients. Most of the times, the visits didn’t translate into sales and he made barely Rs 3,000-4,000 a month.
“I was spending more on fuel than what I was earning in commissions,” he says. He could not take help from his children who had immigrated to the US.
But three years ago, this retired PSU manager found the key to unlock the value of his property when he reverse mortaged his 1,000 sq ft apartment in Delhi. Reverse mortgage is just the opposite of a home loan. In a loan, a person buys property with money given by the bank and repays it with EMIs.
In reverse mortgage, the bank starts giving the owner a monthly payment as a loan against his house. The owner can borrow up to 75% of the value of the property. After his death, his heirs have to repay the reverse mortgage loan taken by him against the property. “It acts as a forced saving for the owner’s children,” says Mathur. What’s more, the house is revalued every five years and the borrowing limit is accordingly revised.
In 2007, his house was valued at Rs 60 lakh and he was allowed to borrow up to Rs 40 lakh against it over the next 15 years. The EMI was fixed at Rs 9,600. The move helped Mathur more than double his monthly income from Rs 9,000 to Rs 18,600. “The government’s decision to introduce reverse mortgage is a godsend for retirees like me," he says.
Till then, Mathur was facing difficulties trying to make ends meet. After taking voluntary retirement in 2001, he found that his nest egg of Rs 22 lakh was not as big as it appeared. A good chunk went into repaying loans and he was left with Rs 12 lakh which he invested in a few insurance plans for annuity income.
“It was difficult to manage the household with the Rs 9,000 I got as annuity,” he says. Mathur tried different options to supplement his income. Since he had a financial background (he had retired as general manager, finance, of Bhel), he started selling life insurance. But he could not keep up with the pace required for the job. He also had to travel long distances to explain the policies to prospective clients. Most of the times, the visits didn’t translate into sales and he made barely Rs 3,000-4,000 a month.
“I was spending more on fuel than what I was earning in commissions,” he says. He could not take help from his children who had immigrated to the US.
STRATEGY | BENEFITS |
To reverse mortage his 1,000 sq ft apartment worth Rs 60 lakh | Receives monthly income of Rs 9,600 for his flat. This supplements the Rs 9,000 he gets as annuity from his investments |
The first glimmer of hope came in 2007, when the government announced the reverse mortgage scheme. “It was a novel concept and not immediately understood by the public,” says Mathur. Some people even saw a stigma in the scheme. Imagine, funding your living expenses by pawning the house you live in. Yet, Mathur saw in it the panacea for his problems.
When the Punjab National Bank launched the scheme in 2007, he was among the first applicants. Though most of his problems are behind him, Mathur has broader concerns on his mind. “The life expectancy in India is rising but few people are financially prepared to deal with this,” he says. “Reverse mortgage can help them tide over the problem in their sunset years,” he says.
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