The medical treatment costs have shot up. Therefore, it becomes difficult for senior citizens to manage their expenses if they don’t have a steady income or financial assistance from children. Also senior citizens may face difficulties in terms of proper & permanent accommodation. In such situations, the reverse mortgage becomes very useful for senior citizens. Union Government introduced the reverse mortgage in 2007. In this article we present to you how senior citizens can benefit from reverse mortgage.
First we have begun with a short introduction on reverse mortgage followed with the how a reverse mortgage functions.
How senior citizens can benefit from reverse mortgage | What is reverse mortgage?
Banks usually advice the senior citizens who need financial assistance to go for reverse mortgage.
A reverse mortgage acts as the differing form of conventional home loan. With the help of reverse mortgage, a senior citizen can get regular income from lender against his home’s mortgage. The person who applies for reverse mortgage pledges his property against a periodic payment till his last breath.
How senior citizens can benefit from reverse mortgage | How does a reverse mortgage function?
When you pledge your home for a reverse mortgage, the bank determines your home’s monetary value on certain factors. These factors are your property’s demand in the market, present property prices & your home’s condition. After analyzing these factors the bank disburses to you a loan amount at regular periods as payments. Before that the bank decides its margin for the interest costs & price fluctuations. These periodic payments are called as reverse EMI which you receive over a fixed loan period.
Your interest in the pledged house decreases with each payment on a monthly or quarterly basis. Therefore, it’s a good facility for senior citizens to get steady income. Also it’s beneficial to those whose properties are illiquid. Further you can browse through the general guidelines for reverse mortgage.
How senior citizens can benefit from reverse mortgage | General guidelines for reverse mortgage
The guidelines formulated by The Reserve Bank of India are as follows-
- You can apply for maximum loan amount of 60% of your property’s value
- The maximum mortgage period is of 15 years & minimum is of 10 years. There are certain banks which offer a maximum period of 20 years.
- There is an option for quarterly, monthly, lump sum or annual loan payment.
- The lender will carry revaluation of your property once in every five years. If your property’s valuation increases then you can increase your loan’s quantum. You will receive this incremental amount in lump-sum.
- The amount you receive from reverse mortgage is a loan & not income. Therefore, it does not involve tax. However, a borrower is liable to pay the capital gains tax. This is at the time of alienation of your mortgaged property by the lender. The lender does it to recover the loan.
- Reverse mortgage interest rates can be fixed or floating. It‘s decided based on the current market interest rates.
How senior citizens can benefit from reverse mortgage | Eligibility Criteria for reverse mortgage
- You need to be above 60 years of age. Your co-applicant (spouse) should be more than 58 years of age.
- You should be the owner of a self-acquired & self-occupied residential property situated in India with required proofs.
- Property should not possess any obstacles or encumbrances.
- The property’s life should be at least 20 years.
- Your property should be your permanent primary residency.