Reverse mortgage, in simple terms, is reverse of a home loan. The borrower will receive regular income against his house’s mortgage. The borrower will be allowed to stay in the house till his demise while receiving payments for a set duration as per the terms of the contract.
Let’s say Mr Singh is living in his own house for the past 30 years and is a retiree now. He can opt for reverse mortgage on this property to receive regular liquidity out of the immovable property. On getting his application for reverse mortgage, the bank will come at a value of the property as per actual property prices, demand for the property and its condition. The bank will come to a figure that will be paid out regularly in fixed instalments to Mr Singh for the chosen duration, which can be anywhere between 10 and 20 year. When the reverse mortgage matures, the regular income will cease, however Mr Singh will be allowed to stay in the property till his death. The property will be acquired by the bank only on his death.
Features of Reverse Mortgage
Reverse mortgage follows the following rules:
- The maximum amount of loan cannot exceed 60% of the property’s value.
- Tenures range from a minimum of 10 years up to 20 years (most banks provide 15 years maximum tenure).
- Pay-outs can be requested in equated instalments of annual, quarterly, monthly or lump sum frequencies.
- Property revaluation will be conducted every 5 years and if the property value has increased, then on applying for increase in loan amount the differential amount will be paid out as lump sum by the lender.
- No tax on the fixed instalments as they are considered as loans.
- Capital gains tax applicable on selling of the property.
- Fixed and floating rate plans are available.
- Amounts from Rs.50 lakhs to Rs.1 crore are generally available.
Eligibility of Reverse Mortgage Loans
The following eligibility conditions need to be satisfied for applying for reverse mortgage loans:
- The homeowner should be senior citizen, i.e. at least 60 years old.
- Co-applicant spouse should be at least 58 years old.
- The property in question should not have encumbrances.
- The applicant(s) should be permanently residing in the said property.
- The property should be at least 20 years old.
Final settlement of loan
- If the borrower survives at maturity of the loan, the regular payments will stop.
- The borrower can continue staying in the property till death, with settlement taking place only after his/her demise.
- The loan may be prepaid at any point in the tenure without any prepayment charges or penalty.
- The borrower should not stay away from the property for more than a year continuously.
- The borrower should clear all tax dues on the property or the loan will get foreclosed.