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  • What Is A Reverse Mortgage?

    Reverse mortgage is a home loan wherein the borrower will receive the loan amount in monthly instalments for a house he/she owns. This is the opposite of a home loan where the borrower would have to pay monthly instalments to the lender.

    Reverse Mortgage Loan Eligibility Criteria

    • A reverse mortgage is available to anybody over the age of 60. In case a couple wishes to opt for one, at least one of the participants should be over the age of 60 years. Many banks require the other spouse to be 55 and above, while some require him/her to be at least 58.
    • The borrower must have a fully owned house. In case of a couple, at least one of them must own a house. In some cases, banks take over the home loan and pay off the balance in monthly instalments to the borrower.
    • The property must have been in existence for at least 20 years.
    • The property must be the permanent residence of the individual.
    • The property must be self-acquired, which means the property cannot be inherited or a gift.
    • Properties that are let out or being used for commercial uses are not eligible.

    Documents Required To Avail Reverse Mortgage

    The documents required to avail a reverse mortgage are mentioned below.

    • Permanent account number (PAN)
    • Aadhaar card
    • Registered will
    • List of legal heirs
    • Property details

    Top 3 Tax Benifits On Reverse Mortgages

    1. The income the borrower receives from the bank will be tax free.
    2. In the event that the house is renewed or repaired with this money, the amount spent on the renewal or repair will be eligible for deduction in computation of income.
    3. The repayment of the loan at the end of the loan term will not be considered deductible.

    9 Points To Remember In Reverse Mortgage

    1. A reverse mortgage is available to citizens of India who are over the age of 60. In case of a couple looking for a reverse mortgage, at least one of the participants must be over the age of 60, while the other has to be over 55 or 58 years of age, depending on the bank.
    2. The maximum loan provided under this scheme is 60% of the property cost, up to a maximum of Rs.50 lakh.
    3. The minimum tenure of the loan is 10 years while the maximum tenure varies from bank to bank.
    4. The borrower can either opt for monthly, quarterly, yearly or lump sum payments.
    5. The property must be revaluated every 5 years by the bank or housing finance company.
    6. The income received from a reverse mortgage will be tax free as it is considered a loan.
    7. The rates on a reverse mortgage vary from bank to bank and the type of loan the borrower has opted for.
    8. The processing fee of a reverse mortgage varies from 0.15% - 1.50%, depending on the bank.
    9. A borrower can prepay the loan at any point during the term of the loan without attracting a prepayment fee, in most cases.

    List Of Banks That Offer Reverse Mortgage Scheme

    National Housing Bank (NHB) Punjab National Bank (PNB)
    Central Bank of India Indian Bank
    Andhra Bank Dewan Housing Finance Limited (DHFL)
    State Bank of India (SBI) LlC Housing Finance
    Corporation Bank Canara Bank

    Drawbacks Of A Reverse Mortgage Scheme

    • Lengthy documentation is usually required in order to avail a reverse mortgage.
    • The monthly amounts are fixed and there will be no provision to increase this amount.

    Reverse Mortgage Scheme For Senior Citizens

    Senior citizens looking for a stable source of income can benefit from a reverse mortgage. Not only do they receive a steady source of income, but their heirs would profit from this transaction in almost all cases as the property value is bound to rise overtime and outweigh the loan amount.

    What Is A Reverse Mortgage In Simple Terms [With Example ]

    Introduced to the nation in 2007, a reserve mortgage has been a blessing to many looking for a stable income in the current economy. Vaguely, a reverse mortgage is the opposite of a home loan. In a reverse mortgage, the borrower will receive the loan amount in monthly instalments for a house he/she owns, as opposed to a home loan where the borrower will have to pay off the loan in monthly instalments to the bank.

    So how does the bank profit from this transaction? This can be explained in the following example. Let’s say that Mr. and Mrs. Raghav fully own a house worth Rs.1 crore in the city of Bangalore and are looking for a stable source of income as their two children haven’t begun earning yet. Aged 60 and 65 respectively, the Raghavs then opt to go for a reverse mortgage. On consulting with a bank, the bank agrees to approve a reverse mortgage of Rs.75 lakh for 15 years, payable in sums of Rs.42,000 monthly.

    At 80, Mr. Raghav passes away of old age. However, his wife still lives in the house and his two children are old enough to financially support the family. A few years later, Mrs. Raghav too passes away at the age of 85. The tenure of the reverse mortgage has now surpassed the 15 years initially agreed upon and is now 20 years old. The loan has therefore grown and currently amounts to Rs.1 crore.

    At this point, the property is then transferred to their children. The children now have two choices on how to go about closing the loan. They can either pay off the loan of Rs.1 crore and keep the property or they could sell off the property that will now be worth Rs.2.5 crore, pay off the bank and keep the difference. In this case, if Raghav’s children sell the house for Rs.2.5 crore, they will have Rs.1.5 crore for themselves after paying off the mortgage of Rs.1 crore.

    In the event that the borrower of a mortgage loan doesn’t have a legal heir, the bank will simply take possession of the house, sell it off and make a profit out of it.

      

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