Everything You Need to Know about Reverse Mortgage Loan Schemes

Retired life can be tough. Quite often we come across many instances where the retirees are asset-rich but cash poor. Real estate investments are popular in India, and it is common to see people retire with assets in hand but no proper planning for retirement.

This is where a scheme called the reverse mortgage loan can come in handy.

What are reverse mortgage loan schemes?

Just like home loans, which allow you to buy a home, reverse mortgage schemes act in the opposite order. It is like a loan on your home which pays you a monthly payout. Still confused? Let us explain it to you in detail.

Suppose an elderly couple owns a house valued at Rs 70 Lakh and is interested in a reverse mortgage scheme. Here’s what happens:

The bank scrutinises the documents, looks at the current and future market value and the physical condition of the house before setting a value for the property. The property is pledged with the bank, and the elderly couple gets an outgo from the bank. This can also be called the Reverse EMI.

The amount so received is considered as a loan and not income, hence is not taxable. This loan can be availed as monthly, quarterly, annual or lump sum payment.

What are the conditions applicable to a reverse mortgage scheme?

This scheme was introduced in the year 2007 and the Reserve Bank of India has set a few conditions to avail of reverse mortgage schemes.

• This scheme can be availed by house owners aged 60 and above. When applied jointly with a spouse, one of them has to be aged 60 or above.
• The house being mortgaged should be free from any sorts of encumbrances. Also, only residential properties can be mortgaged under this scheme.
• Minimum tenure of the loan is 10 years with a maximum tenure of 15 years. However, banks do allow tenures of up to 20 years.
• After the period of the loan, the payments from the lender will stop. However, the owners can continue to stay at the property until death or moving out permanently.
• A fixed interest rate is applicable on reverse mortgage schemes. This is not covered under floating rate yet.
• There would be a periodic revaluation of the property. The payouts may vary if there a huge difference in the original valuation of the property.
• After the death of the owners or if they move out, the loan becomes payable. If the legal heirs would like to have control of the property, they would need to repay the predetermined amount to the lender.
• The lender will dispose of the property after the death of the owners. In case the sale amount is higher than the amount of the loan, the amount in excess will be handed over to the heirs.
• There is no fixed condition towards the use of payments given by the lenders.

Though this is a good scheme for the elderly to get a monthly flow of income, the scheme has not met much success in the Indian market. This is due to the fact that we are culturally more attached to our assets and would like to pass it on to our heirs. Also, awareness and knowledge about reverse mortgage products seem to be lacking. What do you feel? Let us know if you or anyone you know has applied for a reverse mortgage loan scheme.