In the prevailing economic scenario, financial needs of individuals have only multiplied. Cost of living has escalated and continues to grow rapidly. This has put a lot of pressure on the financial resources of individuals as unforeseen needs have become the order of the day.
Let me share a recent email received from a senior citizen facing fund shortage to meet certain domestic obligations. The senior citizen, who is a retired government employee writes:
“I want to marry off my daughter but due to lack of funds my daughter’s marriage is getting delayed. I have a house whose market value is more than Rs.50 lakh. I want to raise a loan against this house. Later, my plan is to liquidate the loan by selling off the house. Is there any such scheme through which I can access funds to fulfill my needs.”
Another communication from a senior citizen on similar lines is also worth quoting. Some time back, I received an interesting post card on my official address.
The post card was from an eighty years old anonymous senior citizen. He had narrated some shades of miseries on his domestic front with money shortage as the baseline of all his problems.
He had found a reason to write to me as in one of my columns I had written about a financial scheme for elders, Reverse Mortgage, which was introduced as a major initiative for providing social security to senior citizens. The senior citizen was owning a house worth a few crores, but was neglected by his family. His source of income was an issue and had to struggle to meet even his basic needs.
If we look around us, we will find a good number of senior citizens, especially retirees, who are struggling with the finances to live a peaceful life.
Even as they have an appetite to continue to work beyond retirement period by starting their own business ventures, and most importantly their health condition also permits it, they lack appropriate finances to make a post retirement beginning in this regard.
Actually, we are caught in the web of high inflation, higher medical costs, and extravagant lifestyles triggering demand for more and more financial resources.
There are many senior citizens like the ones mentioned above who are in dire need of money to fulfill some of their unavoidable requirements – for example, an unforeseen medical emergency, education and marriage of their children etc.
It has been observed that most of the senior citizens are not aware of the banking facilities, particularly loan options available to them. It is also a fact that bankers are very conservative to sell their products and services to senior citizens, even though schemes are in place to satiate their financial needs up to some extent.
Mortgage loan is one of the popular loan schemes for senior citizens. There is an option for the senior citizens to raise a loan against property. The individual can mortgage unencumbered residential house/flat, commercial/Industrial property with a clear marketable title.
In this case the loan amount is linked to the monthly/annual income of the borrower. Here the income of the spouse can also be taken into consideration for determining the loan amount. The loan is to be repaid in a fixed period of time through equated monthly installments (EMIs).
Today, we will have a look at certain financial schemes specially tailored for senior citizens, particularly for the government retired employees.
What are the parameters of the scheme where a borrower is given a loan against his/her house property without paying monthly installments?
It is a special financial scheme where the senior citizen can take loan against the owned house property and need not to repay the loan in monthly installments. A borrower can prepay it at any time during the tenor of the loan. Otherwise the loan is recovered after the death of the borrower by putting the house on sale. This option is known as ‘Reverse Mortgage Scheme (RMS)’.
Notably, the scheme is all the more useful for people who do not receive any kind of pension or are unable to manage cash flow for even routine living. It’s a scheme which facilitates senior citizens to earn a sort of old-age pension out of their owned house property. More the age of the senior citizen, more is the loan amount sanctioned in his/her favour.
The key requirements for a mortgage loan are that the borrower should not have any outstanding loan against the property being mortgaged and that he or she must be 60 or more.
We have a good chunk of such elders who have property but no sustained source of income or lack financial support from the children to fend for themselves for the rest of their life. It’s also a fact that most of our elders have developed a tendency to live separately, preferably without depending on their children for their amenities and medical needs. So the reverse mortgage is a financial cushion for such elders to fall back upon for financial support.
Is a retired government official eligible for a cash loan scheme?
Yes, there is a personal loan scheme for government pensioners available with almost all banks. There is no basis in the general perception that you can’t get a personal loan in old age. Personal loan schemes (cash loan) for senior citizens is a reality.
Here the pensioner can get a loan as per his monthly pension from the bank where he or she is maintaining a pension account. Besides, the age is also taken into consideration while evaluating the quantum of loan.
The borrower doesn’t need to mention the reason for availing the loan facility under this segment. Most of the banks ensure recovery of such loans is completed by the time the borrower turns 75 or before that. In terms of security, the banks seek guarantees of the pensioner’s spouse or any other family member.
There are some retired government employees who have expressed their urge to be entrepreneurs, but lack financial support to venture into entrepreneurship. Is there any loan scheme to fund their business ventures?
J&K Bank has taken a lead in the banking fraternity by introducing a finance scheme (‘Start Again’) to finance start-ups of retired employees below the age of 65 years in Greenfield enterprise in manufacturing and services sector. Notably, hand holding of the retired employees seeking financial assistance for his/her entrepreneurship venture is part of the scheme. The bank shall be provided guidance to them to set up business enterprises.
Some of the indicative ventures include media & entertainment, tourism, healthcare, IT & allied services, food product sector, arts and crafts etc. Besides, ventures like fitness centres, kindergarten / pre-school, formal school, crèches, and tuition centres also fall under the ambit of the scheme.
Notably, projects allied to agriculture such as pisciculture (fishery), apiculture (beekeeping), poultry, livestock, dairy, agri-clinics & agribusiness centers, aggregation agro industries, food & agro processing, etc. are also eligible for funding.
Quantum of loan is linked to the nature of activity. It ranges between Rs.2.00 Lakh to Rs. 20.00 Lakh. The loans are primarily secured by way of hypothecation/assignment/mortgage (registered or equitable mortgage) of all the assets (fixed and current) financed by the bank. In collateral terms, the loans up to Rs.10.00 Lakh are covered under credit guarantee scheme for which the fee shall be borne by the bank. Loans above Rs.10.00 Lakh, are secured either through credit guarantee scheme for which fee shall be borne by the borrower; third party guarantee of two persons or through mortgage of property, registered or equitable.
The loan is to be repaid within 7 years including a repayment holiday of two years.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.