This form of mortgage unlocks the revenue potential of a house for senior citizens
A mortgage is a form of hypothecation of a property to a banks or housing finance company as a security for a loan. A common form of security banks insist on is a mortgage of the house for which the loan is being availed of by the borrower.

Mortgage is the transfer of interest in a specific property to secure the payment of money advanced. The transferor is called a mortgagor, the transferee a mortgagee, the principal money and interest secured are called the mortgage money, and the instrument by which the transfer is effected is called a mortgage deed.

In case of a reverse mortgage, the property owner surrenders the title of the property to a financial entity. The financial entity doesn't pay the entire amount to the owner upfront. On the contrary, it pays out a regular sum each month for the agreed time. The owner gets to stay in the property along with his spouse for their lifetime. Thus, the owner can ensure a regular cash flow in times of need and enjoy the benefit of staying in the property. After the owner's death, the property is transferred to the institution, and not to the heirs. Reverse mortgage is a relatively new concept in India. The concept is quite popular in developed countries to generate cash flow.

The arrangement will be available to those above a specific age, for example, 60-65 years. The aim is to turn the immovable property into a 'liquid' asset that generates a return while it is used by the owner. The amount paid out each month is for a specific period of time. The financing institution has to bear the risk of the individual outliving the agreement. At the expiry of the agreement period, the monthly payments to the owner stop.

The monthly payout depends on the value of the property, terms of the agreement and the rate of payment. The valuation of the property is to be done by professionals. The entire payout mechanism - calculation and computation - depends on the law of probability.

On the death of the owner, the spouse can continue living on the premises. Only in case both the husband and wife die during the tenure of the scheme, the institution will sell the property, take its share as per the terms and distribute the rest among the heirs.

As a concept, reverse mortgage is of immense use in unlocking the otherwise illiquid asset. Hitherto, immovable property was treated as one of the most illiquid assets. Reverse mortgage tends to unlock the liquidity potential of this asset. It helps the owner get a decent return from his immovable property, without having to part with it. The owner can continue to be in possession of the property during his lifetime

Some conditions usually applicable to avail a loan to buy a plot of land

A loan to buy a site is available if you want to purchase a plot of land and construct a house on it later. Usually, the bank insists that the site be purchased from a recognised authority like a development authority such as the Bangalore Development Authority, from a society or from a recognised developer.

In addition to the normal documentation, some additional documents are required to avail a land loan. These include:

• Original documents of ownership of land
• No encumbrance certificate from the registrar's office certifying that the land is not already mortgaged
• Layout drawing (approved by the city development authority) of the location where the land is, giving details of the precise location of the site and its surrounding areas
• NOC from the society for sale and transfer of land Latest revenue receipt confirming payment of land dues to the government and tax receipt for tax paid by the owner of the land

Also, most banks finance the purchase of a site only if it is in a location within the limits of the municipal corporation.

Most banks have a minimum and maximum loan amount that they lend for the purchase of a site. This differs from one bank to another. Most banks specify a limit on the loan-to-value ratio that they maintain. It could vary from 60 to 70 percent of the registered value.

The loan amount offered has no relation to the market value of the property. Any premium paid by the purchaser has to be out of your own resources. Some banks charge a higher rate of interest on loans for purchase of a site. The rate of interest on these loans may be higher by about 25-50 basis points.

The disbursement of the loan amount is always in favour of the seller of the site unless the purchaser has already paid the amount to purchase the land. Typically, the charges applicable to normal housing loans are applicable to land loans as well. Further, the age norms for a customer to be eligible for a land loan and the eligibility calculations for computing loan amount are the same as that of a regular home loan. Most banks also have a minimum income criterion. The repayment for the loan is through equated monthly instalments (EMIs) just like other home loans .However, the tenure of these loans is usually lower – up to 10 years.

The interest paid on the money borrowed for the purchase of land is not eligible for income tax deductions. However, once the borrower converts the land loan into a housing loan to finance the construction of the house, he can avail the tax benefits available under the Income Tax Act.

The security of the loan is an equitable mortgage of the site. It is done by depositing the original title deeds of the site with the lender. The lender may also insist on additional collateral security depending on the type of land.

Financing purchase of sites is a bit risky because of difficulty in documentation. Further, there is risk of security of the property. This is compounded by the fact that there may be delay in commencement of construction. One necessary requirement is that the land should be developed and clearly demarcated, and should have been approved for residential buildings

The earlier you buy property in your earning years, the better it is for you financially. Here are the list of questions you should answer first to get the best deal

The high economic growth in the past five years has brought about a big change in the life of the average person. Many young people are joining work early and earning high salaries. Many of them are either single or newly-married with lower financial commitments. There is higher disposable income in their hands. Home loans are relatively easy to get and mortgage rates are getting cheaper. So, the journey of wealth creation now starts in early 20s.

Property as an asset

Easy availability of home loans, declining loan rates and tax concessions imply that with the right amount of planning you can easily buy that dream home early in life. When you analyse it thoroughly, the first house purchase is not just to fulfill your dreams but also to provide for a secure place to live in through the golden years of your life - after retirement.

Due to the improved living conditions and access to better medical facilities, life expectancy is increasing. This has led to a situation where you will be spending approximately the same number of years in retirement that you would have spent in your active working life. Having a house where you can stay comfortably in then becomes a necessity rather than a choice.

Arriving at the budget

Starting early provides you with the ability to finish off the first housing loan while you are in your early 40s. This gives you the added luxury of buying a second house for investment purposes. However, to get all this right requires proper planning. Hence, a lot of thought and planning has to go into the buying process. It requires long-term financial planning.

The right financial planning practice starts with asking a few questions. These questions throw up many surprising answers and help in understanding your needs better. For example, do you have enough cash resources to cover expenses for at least the next two months? It seems like a simple question, but is a very relevant one. It helps you provide for contingencies before you venture out to invest or take a housing loan.

Some questions you have answer while buying a house:

What type of house do you need?

The kind of house you need will be based on a host of factors like proximity to schools, offices, shopping centers and medical facilities. Making a list of all the items you need in your house in the order of priority. This helps your selection process because it weeds out choices that do not find favour.

How will you fund the down payment?

Even though banks are funding a substantial part of your housing costs, you will have to arrange for your contribution upfront from your personal savings. This will be no less than 15-20 percent of the value of the house. You also need to cover at least a part of the closing costs. So, the first step towards owing your own house is saving up for down payment.

How big a loan should you avail?

If you are buying a house with borrowed funds your home specifications will depend upon how much you can borrow and how much you can raise as down payment. The mortgage lender will work out your loan eligibility in both scenarios. The quantum of loan can be either linked to income or to down payment. It pays to be prudent and limit your EMIs to no more than 35-40 percent of your net take-home pay if you do not have other loans.

What should be the loan tenure?

Another major decision you will have to make will be the length of loan tenure. Generally, the longer the loan the costlier it becomes. A five-year difference in the loan tenure could set you back by a couple of lakhs. So, the general philosophy should be to pay back the loan as early as possible. If you have an early start, you will be in a position to settle your first loan and be eligible for another housing loan for your second house.

Insurance and taxes

These are expenses that are not factored in the calculations before buying the house. These increase the cost of ownership. For any home loan borrower, it makes sense to get insurance so that in the unfortunate event of his untimely death the loan can be settled with the insurance. Further, a home insurance to cover your home and its contents will stand you in good stead.

Asking the right questions to yourself before buying a house will help you get the maximum value for your money