Direction : Read the passage carefully and answer the questions given below it.
Reverse mortgage is a financial product that enables senior citizens (60 years-plus) to mortgage their real-estate assets with a lender and convert part of the equity into tax-free regular income. This saves them from selling assets in their lifetime.
The Life Insurance corporation (LIC) is planning to enter the reverse mortgage business. LIC's entry into the segment is significant as it has a huge base. According to IRDA, LIC has a 29% share in the total new life insurance policies sold in 2008-09.
The National Housing Bank's (NHB) reverse mortgage loan-enabled annuity scheme has sanctioned 40 loans estimated at Rs 100 crores. To the NHB, around 7000 loans amounting to Rs 400 crores have been sanctioned till March 2010. It is expected that the modified scheme that provides life-long annuity to the buyer and his spouse will catch on with the entry of LIC in the segment.
With the existing scheme, LIC will provide payments in the form of annuity to the policy holders. Once the assessed value of the house and the loan amount to be disbursed is decided on, LIC will start making payments till the policy holder survives. The bank will make full payment of the total loan amount to the LIC, once the policy starts which the insurer can invest as per the company's investment guidelines.
In case of reverse mortgage, the property owner surrenders the title of the property to a financial institution. The financial institution 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 death of owner 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 aim is to generate returns out of the asset, while it is used by the owner and to make immovable property more liquid. The monthly payout is for the specific period of time and the amount of payout depends upon the value of property as well as the period of agreement and the rate of payment. The entire payout mechanism — calculation and computation— depends on the law of probability.
The financial institution has to bear the risk of the individual outliving the agreement. Reverse mortgage is of immense use in unlocking the otherwise illiquid asset.
Direction : Find the correct and suitable answers of the questions given below on the basis of the afore-said passage from the options ( 1,2,3,4 & 5) given.
Direction (Q. 3 - 10) : Each question contains two statements. Find the statement( s ) which is/are 'TRUE' in the context of the passage and mark the correct option from the options following the statements.
A. Reverse mortgage is a novel concept in India.
B. This product can't be successful in a developing country like ours.