Reverse Mortgage


With the varying lifestyles and added pressures, it is becoming increasingly difficult to take care of the elders at home. Children are moving out of their home towns in search of better opportunities - higher education, marriage and settling abroad. Most parents are skeptical about joining their children in unknown locations and refuse outright to do so making it difficult to live together. Also if aged parents decide to live by themselves, the financial burden is yet another factor to be considered. If they are pensioners, they somehow manage their expenses. For those without any pension, there is no source of income. 

What is reverse mortgage?

For parents with own houses who want to lead a dignified life after retirement without depending on their children financially, reverse mortgage is a very good scheme. It is basically a financial instrument which came into effect from 2007. It is the opposite of a conventional mortgage. In this system, the senior citizen can receive a regular payment from the bank against the mortgage of his home. The worth of the property is estimated by the bank. Depending on the worth , the bank sanctions the loan in periodic payments.

Eligibility Criteria:
  • The house should be owned and occupied by elders who are above 60 years
  • The life of the property should be atleast 20 years
  • The house should be the permanent residence of the elders.

General guidelines from RBI:
  • 60% of the property's worth can only be taken as loan
  • The maximum tenure for this payout - 15 years
  • The minimum tenure for this payout - 10 years
  • The property will be re-evaluated once in every five years

Points to be noted:
  • The monthly payment received is not an income. It is a loan and therefore no tax payments are required.
  • This type of loan ends when the last surviving borrower of the loan dies.
  • After that, the bank gives an option to the next of kin to repay the loan along with the interest. 
  • If the next of kin is not interested or is unable to pay the loan, the bank recovers the money through the sale of the property. If there was extra amount after settling the loan , the excess is passed onto the legal heirs.
  • In case of loss during resale, the bank bears it.
The drawbacks:
  • The monthly payout is fixed. There is no way to increase that during any kind of emergencies.
  • The application process is long and complicated and the elders might end up not understanding it.
Reverse mortgage is yet to be popular in India. Nevertheless it is a decent option for aged and lonely parents who are asset rich and cash poor. Before getting into any kind of deals with the bank it is always best to research and understand their policies.


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