If you are a senior citizen and facing financial problems given the limited resources, then a reverse mortgage scheme is here to boost your monthly income. The scheme was launched by the government back in 2007 is best suited for retired house owners who do not have a residual monthly income and their income is under stress due to low returns from fixed deposits and other debt schemes.
The scheme, however, never gained popularity and was not advertised by banks too. But given the current scenario, this could be a good time to consider reverse mortgage since the interest rates are low.
For a layman, a reverse mortgage scheme is a loan offered by banks for a maximum period of 10-12 years. But, what differentiates reverse mortgage from other loans is that the loan amount is not paid by the borrower but the legal heir.
The banks decide the loan amount after evaluating the house and its location, and the maximum loan amount offered is Rs 1 crore even if the property is worth much more. For repayment, the banks either sell the property after the senior citizen’s demise of the legal heir or nominee pays back.
There are two payout options – regular mortgage directly from the bank and annuity based loan where the bank sanctions a lump-sum amount but gives it to an insurance company which in turn calculates annuity and then pays either monthly, quarterly, half-yearly or yearly.
The loan amount received as monthly instalment or lump-sum is exempted from tax as it is not treated as income earned. In Indian culture, where the family house is attached with emotional bonding and is typically passed on to the children or legal heir, the scheme remains highly unpopular.
Even for the banks, if a senior citizen takes a reverse mortgage loan for 10 years and continues to live for 40 years, the lender has to just wait for the borrower to die to recover the amount.