The old age may be, financially, a golden period of your life or the worst part of your life depending on whether you have accumulated enough to meet day today expenses after your retirement. Due to gradual decline of joint family system in India couple with rapid urbanization and the increasing trend of  children staying away from parents, many a retired persons find it difficult to meet both their  ends meet with their meager resources. They are at the same time not comfortable in asking their children for financial help. In order to help such retired senior citizens who are staying in their own house the government introduced Reverse Mortgage Scheme, in 2008. Let us discuss the scheme in detail. 

Basic  features of the Scheme

The reverse mortgage scheme is exactly opposite of the pure home loan product where the borrower receives money in installments and which gets paid off in full later against the pure mortgage loan where the borrower borrows in lump sum and repays in installments. The borrower can also get some lump sum under the scheme.

The amount of loan available is dependent on the market value of the property, as determined by the lender, age of the borrower and the prevailing rate of interest.  Since the purpose of this scheme is to supplement the resources of senior citizens, the maximum amount one can get under the reverse mortgage is capped at Rs. 50,000/- per month. Likewise the lump sum available is also restricted to 50% of total amount available subject to Rs. Rs. 15 lakhs maximum. The lump sum facility can only be availed limited purposes like medical treatment of the borrower, spouse and dependent persons or  for repair, renovations of the house or for repayment of any outstanding loan on the property. The money can not be used for any business purpose including any speculative purposes.

Under the reverse mortgage instead of periodical payments, you have an  option to buy an annuity from a life insurance company with the available loan amount. In such case the lender pays a lump sum to the life insurance company for buying the annuity of your choice. 

Who can avail reverse mortgage loan

Any person owning a residential house and stays in the same house and has completed 60 years of age can avail this facility, either singly or jointly only with spouse who has completed 55 years. The residential house can either be owned by the senior citizen or jointly with the spouse on which no loan is outstanding. In case you wish to avail this loan against the house property on which any loan is outstanding, you need to get the loan repaid. The lender should have the sole charge on the property being mortgaged. The outstanding amount of an existing loan against the property can, however, be repaid out of the lump sum amount available under the reverse mortgage. This facility is not available against any let out house or any commercial property.

Along with the application for mortgage loan you have to furnish your PAN along with the list of legal heirs. You are also required to furnish the copy of a Will duly registered along with the application.  So in case you have not executed any Will, you have to first execute a Will and  get it registered before you apply for this loan. You are also required to intimate the lender in case you modify the Will later on.

The list of  bank branches from where this facility is available can be accessed at the link:  http://www.nhb.org.in/RML/List_of_Branches.php 

Interest, tenure and repayment terms

The loan is generally available for a maximum period of 20 years, during which the lender pays you periodical streams of payments monthly, quarterly, half yearly or yearly. Once the tenure is over, though the payments stops, you need not vacate the house and you and after your death your spouse  can continue to use stay in it. During currency of the loan if you do not  desire to  continue with the loan, you can pay the amounts outstanding without any prepayment penalty. The lender is allowed to review the value of the house and thus your eligibility periodically and review the amount of monthly payments.

The loan is not required to be serviced during the lifetime of the borrower and the spouse. After death of borrower/s, the legal heirs have can get the property redeemed after paying the outstanding amount. In case they do wish to claim the house, the lender is entitled to dispose off the property and pass on the surplus legal heirs, if any. It is important to note that there is no negative equity in the reverse mortgage loans so the legal heirs are not liable to pay the lender for any shortfall in case the amount realized on sale of the property is lower than the loan amount outstanding.

We will discuss the tax implications of the reverse mortgage scheme in the next article.

The writer is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his twitter handle

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