For enjoying the second innings in life, one needs to ensure regular income which could take care of increasing cost of living, healthcare expenditure and other vital needs. Many a times one gets into a situation where income from interest , pension or other sources fails to match ever inflating expenditure leading to eroding savings and financial misery.The idea of reverse mortgage comes as a blessing to those in such a predicament.
Reverse mortgage scheme had been in existence in US and other western countries as a resort to elderly citizens for quite some time. Government of India, as part of welfare measures to senior citizens, proposed in the 2007-08 budget that National Housing Bank will introduce the reverse mortgage scheme in which a senior citizen who owns a house can avail of a monthly income against mortgage of the house. Consequently, State Bank of India and other banks have already started offering reverse mortgage to those over sixty years of age.
Reverse mortgage is godsend for those senior citizens who own a house by virtue of inheritance or otherwise but does not want to sell it and continue to stay in it till their lifetime. In the case of dire need of regular income, they can reverse mortgage their property to the bank, and get regular payments. The senior citizens can continue to stay and use the property as if they own it throughout their lifetime. There is also a provision to increase the regular income depending on the increase in the value of the property. The bank will consider the amount provided as a loan and recover the amount by selling the property once the incumbent passes away. The excess amount is given to legal heirs. Heirs also have an option to prepay the loan and get the property.
Salient features of Reverse mortgage are as follows:
- To be eligible for reverse mortgage, the person should be above 60 years. Married couples can be joint borrowers provided one of them is above 60 years and other not below 55.
- After reverse mortgage, the surviving spouse can continue to occupy the property till his/her demise.
- The senior citizens are not required to make repayments of principal or interest for reverse mortgage.
- Depending on the age, the loan amount can be from 40% to 60% of the value of the property.
- Maximum period of loan by reverse mortgage would be 15 years
- The property can be revalued by the bank once every 5 years.
- Since the amount received through reverse mortgage is treated as a loan, it does not attract any tax.
When sources of income dries up during advancing years, reverse mortgage comes as a great relief!