Reverse Mortgage or lifetime mortgage, is a loan scheme designed for the senior citizens. As the name suggests, it is the reverse process of a normal mortgage scheme. In simple words, it works exactly opposite of a normal home loan scheme. First let me take you to the process of Home loan, where you take loan to buy a house and pay EMIs to the bank till the amount of loan gets over. With every payment of EMI your ownership in the house increases. And once you payoff the loan in full, your ownership in the house becomes hundred percent. But in case of Reverse Mortgage, a senior citizen can pledge his/her own property to the financial institution to get the loan. The loan amount can be received as a lump sum payment or monthly installments (Reverse EMI). But with every installment the bank pays to the house owner the ownership of the house owner will reduce.
Every financial institution have some of their own rules for calculating the amount of reverse mortgage on the basis of the worth of the housing property in question, age of the house owner, etc. Typically the tenure for Reverse EMIs is 15 years. At the end of the loan tenure, the Bank stops paying the monthly income. But even after the tenures you can continue to stay in your house. Repayment of the principal or interest is not required, unless you sell your home, move out of your home or pass away. On death or leaving the house permanently, the loan along with the accumulated interest needs to be repaid through the sale of the property.
It is a very popular form of loan for senior citizens where they can convert their house property into a source of tax free regular income as long as they are alive.
FEATURES OF REVERSE MORTGAGE LOAN
- Any house owner above the age of 60 years can apply for this.
- Married Couples also can apply for this. In that case at least one of the married couples should be above the age of 60.
- The borrower need to stay at his own house with proof of residence to get the Mortgage loan.
- The maximum loan can be up to 60% of the value of the residential property (valued by the institution offering the Mortgage).
- The amount of the loan gets calculated depending on the value of the property and the age of the borrower.
- The maximum period of property mortgage is 15 years with a bank or HFC (housing finance company).
- The borrower can take the loan amount either in monthly, quarterly, annual installments or lump sum payments.
- The property gets revalued by the bank or HFC once every 5 years.
- The loan amount received through reverse mortgage are exempt from Income Tax.
- The rate of interest can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.
- The loan amount can’t be used for any business purpose or trading. It can only be used for personal expenses, house maintenance and repairs.
- Borrower has the option of repaying the loan amount along with the interest accumulated if he/she chooses to do so at any time during the tenor without any prepayment penalty.