With inflation hitting the roof and life expectancy increasing, it is becoming increasing difficult for the senior citizens to maintain the same standard of living any more during their retirement years. In order to make both ends meet, senior citizens can now look forward to Reverse Mortgage scheme introduced by the Government of India few years back.
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What is Reverse Mortgage Scheme ?
Actually, the scheme allows you to unlock and tap the value of your residential house, At the same time you continue to reside in the house during your lifetime. Basically, reverse mortgage scheme is ‘exact opposite’ of home loan scheme. As in the case of a home loan you take a lump sum loan and repay it in installments in future. Under the reverse mortgage scheme, you get installments and the loan is repayable in lump sum in future to meet you day to day financial needs.
Apart from National Housing Board, many public sector banks including State bank of Mysore, Allahabad bank offer this scheme. You can also approach Punjab National bank who run the scheme under the name of ‘Baghban’.
How it Works?
Actually, the payment installments are for a fixed period of time. It is usually for a maximum of 20 years. However, they are made generally on a monthly, quarterly or yearly basis. You are qualified for 90% of the value of your house. But the maximum limit is restricted to Rs 1 crore. This also includes interest till maturity. Broadly the tenure of such loan shall not be more than twenty years. This is the period during which the owner of the house will continue to receive the periodic payments. However in case the borrower outlives the tenure of the loan, the payment stream shall stop but he can still continue to stay in the house. Even after his death, his spouse can also continue to stay in the same house without having to worry about repayment of the loan. The rate of interest will vary from one lender to another.
Besides regular installments, you can also avail lump sum loan to the maximum of Rs 15 lakhs under the reverse mortgage scheme. This is for meeting the medical expenses for yourself, your spouse or any dependent person on you. Another area where you can spend lump sum money is on repairs and renovation of the house. You can also repay the loan taken for the same property from the lump sum amount. However, you should bear in mind that the same shouldn’t be used for any speculative purposes like trading or gambling.
The reverse mortgage loan is available to you if you have completed 60 years of age. In case of you are a couple wishing to avail this scheme, one of you should have completed 60 years of age and the other should be over 55 years of age. In some banks this age bar is higher at 58. However, it is not necessary that only a couple can avail this loan. Even a person who is single and a senior citizen, can avail loan under reverse mortgage scheme but the property should be owned by him/ her.
Only a property which is owned by you can be pledged for reverse mortgage. It should be the one in which you are residing and is self-acquired. That means you cannot go for reverse mortgage on inherited property or property received as gift. The residential property should be situated anywhere in India whether in rural or urban area. You cannot mortgage any other property like commercial property or other residential property which is let out though owned by you. The property should have a clear title. However, if a loan is underway on the property, it cannot be used for reverse mortgage unless entire loan has been repaid. The residual life of the property should be at least 20 years in case of single borrower and 25 in case of joint borrowers.
You would require some basic documents like your permanent account number (PAN), list of legal heirs and copy of the registered will in favour of spouse is loan is availed jointly. The property details must also be provided to the lender. Any changes made in the Will must be intimated to the lender from time to time. However, there are no documentation charges. But there is an upfront fee equivalent to the half months loan installment to the maximum of Rs 15000. In some banks this maximum limit is to the tune of Rs 10000.
Pre-payment & Repayment
Once you have obtained reverse mortgage loan, it is not necessary for you to continue with this for the entire tenure of the loan. You can always prepay the outstanding loan and get your documents released any time. Moreover, banks also give you 10-day period to revisit your decision and cancel the transaction if you change your mind. In case of death of borrowers, the lenders sell the property and recover the amount. However, this becomes payable only six months after the death of the last surviving spouse. If there is an excess amount over and above the value of the loan and interest that is recovered by the bank then this would be paid to the legal heirs.An alternative is that the legal heirs pay the entire loan amount along with the accumulated interest and take the right to retain the property.
The good news is that under reverse mortgage scheme the periodic money received by the owner of the property shall not be treated as income and hence exempted from tax. So senior citizens need not worry about it anymore. This is also because it is in the nature of loan being given to them. However, when the property is sold off, either by the bank or the borrower or its legal heirs, the normal provisions of capital gains will apply. But if the legal heirs decide not to sell the property but pay the outstanding dues fully, no tax implications will arise.