Due to various circumstances, the economy in general or your specific circumstances in particular, its possible that you find yourself at the wrong end of your funds position during retirement. That’s when a reverse mortgage can come in handy. Reverse mortgage loan allows senior citizens to convert their house into a source of income while retaining the ownership of the property. Its coming into focus in India too and it would be good idea to start getting yourself familiar with the mechanics of reverse mortgage. The article below will help you with that. Team RetyrSmart
You built and took care of your house. Now let the house take care of you
With interest rates on fixed deposits declining, senior citizens find it difficult to fund their monthly expenses from their retirement savings. Also, the rising cost of medical care makes senior citizens think about an alternative source of income. In such a situation, your house can help you secure a regular source of income. This can be done through a reverse mortgage loan.
Reverse mortgage loan allows senior citizens to convert their house into a source of income while retaining the ownership of the property. Reverse mortgage loan is exactly the opposite of a home loan where you mortgage your home with a bank and the lender makes regular monthly/one time payments to the borrower for a tenure of up to 15 years based on the present market value of the property and the age of the borrower.
In a reverse mortgage loan, the borrower is not required to pay back the loan until he decides to sell his home. As long as the borrower lives in the home he is not required to make any payments towards the loan interest or capital. But the borrower must pay property taxes, homeowners insurance and society dues (if any). Worth mentioning here is that these payments do not attract any income tax or capital gains tax.
In case of a reverse mortgage loan, recovery of the loan amount occurs after the death of the last surviving borrower. Banks recover the outstanding loan amount by selling the property if the borrower’s heirs refuse to repay the loan (principal amount plus interest).
How to avail reverse mortgage loan
This loan is offered by many banks in India including the country’s biggest lender State Bank of India, which gives up to Rs 1 crore in reverse mortgage loan. Amount of the loan depends on the age of the borrower and the assessed value of the property and prevailing interest rate. Interest rate on these loans is typically 2.5-3% higher than the MCLR.
In case of a single borrower, minimum age should be 60 years. In case of joint borrowers, spouse’s age should be more than 58 years. The residual age of the property should be at least 20 years(differs from bank to bank). Also, the borrower should be a resident Indian. The property owner must pay all government taxes, utility bills and property insurance premium. Banks also charge a loan processing fee, which is generally up to 0.50% of the loan amount subject to an upper limit of Rs 20,000.