Reverse Mortgage

Retirement Planning is extremely important in one’s life, as the quality of life after retirement largely depends on how good our planning is made.

However, Planning not always work the way we thought of, due to changes in personal and social factors. These changes spoil financial planning and may lead to deficit of funds in retirement. In such condition or when the income is not sufficient for daily needs one can think of an option -Reverse Mortgage.

Though Reverse mortgage is still new to India it is well known in other nations. In India, it was introduced in budget 2007. The scheme has been introduced keeping in mind especially senior citizens so that they can lead a good life post retirement.

The concept of reverse mortgaged is exactly opposite of the typical mortgage, is defined as a scheme which provides a monthly or regular income to Borrower by mortgaging their house property to a bank.

In other words, in reverse mortgage borrower can pledge their house property to a bank in return for a regular income for a fixed period.

During the life of the borrower, he is not obliged to repay the loan. On death, the bank will sell the property or will ask the beneficiaries to pay off the loan.  Banks sell the house property for the loan amount and if there is any excess amount, it will be given to the owner’s heirs.

National Housing Bank (NHB), a subsidiary of RBI, had prepared a guideline for the scheme in India.

The main features of schemes are as follows:

• Any house owner above the age of 60 years can take advantage of this scheme. Joint ownership with spouse is also granted.
• It is available for self occupied properties by senior citizens and having residual life of at least 20 years.
• The maximum available amount for loan is 60% of the market value of property.
• The amount received through the scheme is treated as a loan, not income and hence will not attract any tax liability.
• The borrower can choose among payment options for monthly, quarterly, annually as per his convenience.
• Revaluation of property has to be undertaken by bank once every 5 years.
• The maximum available period for mortgage is 15 years.

Reverse mortgage can provide a helpline to senior citizens to get a regular income without being dependent on anybody. This scheme is not popular in India due to negligence and still lots of people are unaware of this scheme. But it will surly serve the purpose for senior citizens to lead their life peacefully.

Guest Post – Source : Gayatri Jagdale

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Tagged as: borrower, Loan, Mortgage, Reverse Mortgage