Reverse mortgage is a scheme in which a senior citizen being owner of a house in India can obtain loan from a bank by keeping his or her house as mortgage. All senior citizens can avail the benefit of reverse mortgage scheme to support their old age.
By keeping the house on mortgage, bank will provide a loan to the senior citizen by dividing the loan amount into equal EMIs as in case of a normal loan and will pay it to the senior citizen.
At the end of the loan tenure, bank will stop paying the monthly payment and will not recover the house until the death of senior citizen.
If during the tenure, spouse of senior citizen died then the other person can live in the house without any problem.
After the death of both, bank will recover loan amount by selling the house. If any amount left out then that will be handed over to the legal heirs. If legal heirs want then they can pay the loan amount and recover the house.
In India, many banks including PNB, SBI, LIC housing finance and IDBI offers reverse mortgage facility to senior citizen customers.
Senior citizens can avail this facility from any of these banks if they satisfy all these criteria. One can avail up to 80% of the value of house as loan for 15 years.
Under reverse mortgage scheme, a senior citizen will not be handed over with the entire loan amount immediately or in one go. Senior citizen can avail 50% of the loan amount immediately after availing the loan and the balance will be paid in equal monthly payments.
So a person who has availed a loan of 2 crore (being 80% of the value of house) can take 1 crore immediately and the balance 1 crore in equal monthly installments.
The period of loan depends on the applicant and the annuity amount is calculated based on the bank’s policy.
Every five years, bank will revalue the house and if senior citizen applicant wants then the value of monthly payment can be increased to match the value of the loan.
With the recent amendments in income tax act, monthly income from reverse mortgage scheme will not be considered as a income of senior citizen by which they will not be paying tax on it.
Recently government of India has also allowed insurance companies to offer reverse mortgage scheme to senior citizens.
To apply for Reverse mortgage scheme, the applicant must be a senior citizen who is of 60 years age or above. If it is applied with wife as a co-applicant then she must be 58 years old. Earlier the tenure of this loan was 20 years but it has been extended to the residual life time of the borrower.