Getting into old age without proper financial support can be a very bad experience. The rising cost of living, healthcare, other amenities compound the problem significantly. No regular incomes, a dwindling capacity to work and earn livelihood at this age can make life miserable. A constant inflow of income, without any work would be an ideal solution, which can put an end to all such sufferings. But how is it possible?
The reverse mortgage scheme offered by some of the leading banks in India could bring the required answers to the suffering senior citizens. Most of the people in the senior age groups, either by inheritance or by virtue of building assets have properties in names, but they were not able to convert it into instant and regular income stream due to its illiquid nature. The Union Budget 2007-2008 had a great proposal which introduced the ‘Reverse Mortgage' scheme.
The concept is simple, a senior citizen who holds a house or property, but lacks a regular source of income can put mortgage his property with a bank or housing finance company (HFC) and the bank or HFC pays the person a regular payment. The good thing is that the person who ‘reverse mortgages' his property can stay in the house for his life and continue to receive the much needed regular payments. So, effectively the property now pays for the owner. So, effectively you continue to stay at the same place and also get paid for it. Where is the catch? The way reverse mortgage works is that the bank will have the right to sell off the property after the incumbent passes away or leaves the placce, and to recover the loan. It passes on any extra amount to the legal heirs.
The whole idea is entirely opposite to the regular mortgage process where a person pays the bank for a mortgaged property. Hence it is called reverse mortgage. This concept is particularly popular in the west.
The draft guidelines of reverse mortgage in India prepared by RBI have the following salient features:
- Any house owner over 60 years of age is eligible for a reverse mortgage.
- The maximum loan is up to 60% of the value of residential property.
- The maximum period of property mortgage is 15 years with a bank or HFC.
- The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
- The revaluation of the property has to be undertaken by the Bank or HFC once every 5 years.
- The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
- Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.
The lender will recover the loan along with the accumulated interest by selling the house after the death of the borrower or earlier, if the borrower leaves the mortgaged residential property permanently. Any excess amount will be remitted back to the borrower or his heirs.
Reverse mortgage thus, is very beneficial for senior citizens who want a regular income to meet their everyday needs, without leaving their houses.