Reverse Mortgage Loan Scheme

The Reverse Mortgage Scheme, introduced on 30th September 2008, provides senior citizens with a viable option to monetize the fixed assets they hold. National Housing Bank, commercial banks, and housing finance companies can advance reverse mortgages to senior citizens. This article provides an in-depth examination of the reverse mortgage scheme.

Who Can Avail Reverse Mortgage?

Individuals aged 60 or above, or in the case of a married couple, if either the husband or wife is over 60, are eligible to avail a reverse mortgage on a residential property in India. The scheme offers financial security by enabling senior citizens to leverage their home equity for a steady income.

What is Reverse Mortgage?

A reverse mortgage works opposite to a traditional mortgage. In this scheme, a property is pledged to the bank enabling the owner to receive regular payments, termed as reverse EMI, while continuing to reside in the house. Upon applying, the bank evaluates the residential property's value and based on this evaluation, disburses the loan in regular intervals over a fixed tenure. With each payment, the owner's equity in the property decreases, making it an ideal solution for senior citizens in need of steady income from their property.

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What Type of Property Can Be Reverse Mortgaged?

Only residential properties located in India and owned outright by senior citizens can be reverse mortgaged. The property must serve as the owner’s primary residence, be free from any encumbrance, and self-acquired. Ancestral properties do not qualify for reverse mortgage.

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What Documents Are Required to Apply for Reverse Mortgage?

When a bank processes a loan application, specific documents are required. Beyond entering into a loan agreement, applicants need to provide the following information:

Owner's name and address of the capital asset.
PAN of the owner.
Total area of the capital asset, including built-up.
Cost and year of acquisition of the asset.
Cost and year of improvements.
Names and PAN of all legal heirs.
A copy of the owner’s registered will, inclusive of any amendments during the loan term.

How Much Loan Can Be Sanctioned as a Reverse Mortgage?

The loan amount depends on the mortgaged property’s value. Banks usually sanction amounts ranging from ₹1 lakh to ₹100 lakhs, inclusive of interest. Typically, banks lend up to 90% of the property's market value, depending on the location:

Metro: 10%
Urban: 20%
Others: 30%

Once sanctioned, the bank pays the borrower monthly. At the borrower's request, lump-sum amounts can be released, but cannot exceed 50% of the total sanctioned loan amount.

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What is the Repayment Period for Reverse Mortgages?

Reverse mortgage loans can extend up to 20 years. For borrowers aged 60-65, the tenure ranges from 15-20 years, while for those over 65, it is 10-20 years. No prepayment penalty is applied if the loan is repaid from verifiable legitimate sources. However, a penalty of 2% on the prior 12 months' average balance applies if the loan is cleared by another bank or through third-party means, barring genuine sales.

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How Are Reverse Mortgages Paid Back?

The borrower can clear the reverse mortgage anytime. If unpaid when the borrower passes, the estate is offered to relatives upon mortgage settlement. Failing this, the bank will sell the property to recover dues. This ensures flexibility and security for both the borrower and their beneficiaries.

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Are Reverse Mortgage Payments Taxed?

The payments received through reverse mortgage are exempt from income tax as per Section 10 (43) of the Income Tax Act. However, if the property is sold by the bank, borrower, or legal heir, capital gains tax is applicable as per regular property sale rules. If legal heirs settle the loan without selling the property, no tax is levied.

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Which Banks Provide Reverse Mortgage in India?

Several banks offer reverse mortgage services in India, including:

State Bank of India
Union Bank of India
IDBI Bank

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Reverse mortgages provide financial independence for senior citizens aiming to utilize their property equity. For more nuanced financial advice or assistance, consider exploring various resources or consulting financial experts.

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Frequently Asked Questions

Common questions about Reverse Mortgage Loan Scheme for Senior Citizens in India.

A reverse mortgage is a type of loan that allows senior citizens to borrow against the equity in their home. Instead of making monthly payments to a lender, the lender makes payments to the borrower based on the value of the home. The borrower continues to own and live in the home while receiving these payments.

Any individual who is above the age of 60 years or a married couple in which either the husband or wife is over the age of 60 years can avail of a reverse mortgage on a residential house property located in India.

Residential house properties located in India that are owned by the senior citizen and free of any encumbrances can be reverse mortgaged. The property must be the borrower's permanent primary residence and self-acquired, self-owned property. Ancestral properties cannot be reverse mortgaged.

The loan amount depends on the value of the residential property mortgaged. Banks usually provide loans of up to a maximum of 90% of the market value of the property, with the margin varying based on the location of the property (10% for metro areas, 20% for urban areas, and 30% for other areas).

Reverse mortgage loans can be extended for a period of up to 20 years. The tenure typically ranges from 10 to 20 years, depending on the borrower's age at the time of taking the loan.

Reverse mortgages can be repaid by the borrower at any time without a prepayment penalty. If not repaid during the borrower's lifetime, the property is offered to the relatives on payment of the mortgage due after the death of the last surviving borrower. If the relatives do not pay back the mortgage, the property is sold to realize the dues.

The money received by the borrower under the reverse mortgage is not treated as income and is exempt from taxation under Section 10 (43) of the Income Tax Act. However, capital gains tax may apply if the property is sold by the bank, borrower, or legal heir.

Several banks in India provide reverse mortgage loans, including State Bank of India, Union Bank of India, and IDBI Bank, among others.

To apply for a reverse mortgage, borrowers typically need to provide documents such as their name and address, Permanent Account Number (PAN), details of the property (area, cost of acquisition, cost of improvement), names and PAN of legal heirs, and a copy of the registered will.

While the reverse mortgage loan is typically paid in periodic payments, lenders may disburse a lump sum payment if requested by the applicant. However, the aggregate amount disbursed as a lump sum cannot exceed 50% of the total loan amount sanctioned.