Can your home earn you a pension?

Earning a pension with the help of your home is a fairly new concept. Let us take the example of Mrs. Palekar to show how a home can earn you a pension. Mrs. Palekar belongs to a well-to-do family and has two sons settled in the U.S. She has a home to live in and also has a sum of Rs. 50 lakh saved in the form of a fixed deposit. Every month, Mrs. Palekar earns a sum of around Rs. 30,000 from her fixed deposits in the form of interest which takes care of her expenses, including medication which costs around Rs. 10,000-12,000 per month.

Everything was fine, until Mrs. Palekar discovered that the housing complex she resided in was getting redeveloped and she would have to find herself alternate accommodation. Her existing flat is in the Andheri, Mumbai, and she does not expect to find an inexpensive flat in the same locality. Her promoter is offering her a sum of Rs. 60 lakh for relocation which would be insufficient in the current scenario. Her new flat is going to be ready in four years.

To arrange for an amount higher than Rs. 60 lakh, Mrs. Palekar would have to break her fixed deposit. However, that would not be a feasible option, as then she would not have anything to rely on for her daily living and medical costs.

The Solution

Reverse mortgage is the solution under such circumstances. This scheme is available for senior citizens who are low on cash, but are asset rich.

We have all heard of banks lending money and then mortgaging a house to recover the loan amount. In the case of reverse mortgage, the scenario is opposite. In this case, the bank would pay the owner of the house timely installments in lieu of the house and this practice would continue until the death of the owner. After the death of the owner, the house would become the property of the bank. If a relative or friend wants the house, he could pay the interests and other charges and become the owner of the property.

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