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One knows that the reverse mortgage is a loan taken against ones home which does not need to be paid back for as long as one lives there. This is available only to senior citizens above 60 Years of age .However one needs to own a residential property whose title is in his/her own name and needs to occupy or reside in that property. The property needs to be self occupied with no other loan against it. In a reverse mortgage operation the owner of the home ,a senior citizen generates cash flows from his home by borrowing against his home and continues to stay in his home. The amounts are obtained as a lump sum or as a regular monthly cash advance like a salary. A certain processing fee is charged while sanctioning the reverse mortgage loan amount which might be 1% of the loan amount sanctioned. The maximum monthly payments made by the bank cannot exceed INR 50000 per month. The lump sum cannot be more than 50% of the total eligibility amount with a ceiling of INR 15 Lakhs. The loan can be availed in a limit up to 60% of the value of the house. The maximum loan amount along with interest is restricted to a Crore of Rupees. The bank might make an assessment of the property based on the circle rate or the market rate, strength of the structure and the general maintenance of the property. Higher quantum of loans in the range of 60% of the value of the property can be obtained if one is around 70 Years of age. The rate of interest charged is around 12-15% per annum. One can avail of this facility as long as one does not sell the house, permanently move out of the house or as long as one is alive. In a typical home loan one needs to have a certain minimum salary to have that home loan sanctioned. In the case of reverse mortgage even if one does not have an income one can qualify for this kind of a loan.
How Does Reverse Mortgage Work In India?
A reverse mortgage available for a senior citizen above 60 Years is exactly opposite to that of a home loan mortgage. In a home loan mortgage one borrows a lump sum amount and has to pay back these amounts as a series of Equated Monthly Installments over a fixed tenure.The EMI has a principle and an interest component. The home is pledged as security and is seized in case of non repayment of the loan amount. In a reverse mortgage the home or property already owned is pledged provided it has no existing loan against it. The title of the house continues to remain in the name of the owner, in this case the senior citizen.The bank or Housing Finance Company in this case makes a series of payments or cash flows for a fixed period of time which might be for a maximum tenure of 15 Years and in some cases can go up to 20 Years.The payments are received from the bank on a monthly, quarterly, annual or a lump sum basis.
The amounts received under the reverse mortgage scheme from the bank are considered as a loan or a liability and no tax is paid on these amounts. These loans are typically fixed but floating rate loans are available which fluctuate in lieu of the market conditions. The home needs to be in the name of the senior citizen and must not be let out or given for rent even on a partial basis. The title of the home is in the name of the senior citizen and he continues to pay the maintenance, tax and repair charges. The reverse mortgage payments are made by the bank typically for a period of 15 Years in the form of a reverse EMI after which the payments stop. Higher the age of the senior citizen more are the amounts required by him to maintain himself and consequently higher is the amount available as a loan to value ratio under the reverse mortgage scheme. The owner and his spouse continue to stay in this house even though he might outlive the tenure of the loan. The interest amounts keep accumulating until the loan is settled. The loan becomes due only on the death of both the senior citizen and his spouse.The reverse mortgage amount becomes due along with the interest component when the senior citizen decides to sell the house or both he and his spouse go to their heavenly abode. When both the borrowers die the bank gets in touch with the legal heirs of the property and gives them the option to settle the pending loan amounts along with the interest component and take possession of the house. If the legal heirs are not able to do so the bank auctions the property and uses the proceeds to collect back the loan amounts along with the interest component and the rest of the amount is given to the legal heirs. The property appreciates with the passage of time as long as the senior citizen maintains it well and concentrates on its general up keep. This is viewed as a major benefit and serves as an incentive for the legal heirs to reclaim the property by paying off the dues as well as an emotional attachment of the legal heirs towards the property. The needs of the senior citizen are well taken care of and he continues to stand on his own feet even in his old age. Under the reverse mortgage mechanism the elderly citizen forces his children to support him in his elderly years.
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