A reverse mortgage is the exact opposite of regular mortgage loans. In a regular mortgage loan, the individual pays equated monthly installments (EMI) to the financial institution for purchasing a property. However, in a reverse mortgage loan, the senior citizen who owns a house or property, but lacks a regular source of income, can mortgage their property to the lender in return for a regular stream of income. The financial institution has the right to sell the property post the death of the customer, and the excess amount will be remitted back to their legal heirs.
Features of Reverse Mortgage Loan
- It is an ideal option for senior citizens as it provides them the finance regularly.
- There is no restriction on the end-use of the funds.
- It provides mental peace and financial security to the senior citizens.
- Individuals opting for this loan should be the citizen of India i.e. above 60 years of age.
- Married couples will be eligible as joint borrowers, but at least one of them should be above 60 years of age, and the other should not be less than 55 years of age.
- The borrower must be the owner of the house. In the case of a couple, at least one of them must own a house.
- The property must have been in existence for at least 20 years and it must be the permanent residence of the individual.
- Also, the property must be self-acquired, which means the property cannot be inherited.
- Properties that are let out or which are used for commercial uses are not eligible to get this loan.
The documents required to avail of a reverse mortgage are mentioned below.
- Permanent account number (PAN)
- Aadhaar Card
- Registered will
- List of legal heirs
- Property details
- The income that the borrower will receive from the bank will be exempt from tax.
- If the house is renewed or repaired using this loan amount, that amount will be eligible for deduction in the income computation.
Other highlights of reverse mortgage
- The maximum loan amount available under this scheme is 60% of the property cost, i.e. up to a maximum of Rs. 50 lakhs.
- The minimum tenure of the loan is 10 years while the maximum tenure may vary from one financial institution to another.
- The borrower has the freedom to choose for either monthly, quarterly, yearly, or lump-sum payments.
- The property must be evaluated every 5 years by the bank or housing finance company.
- The interest rates on a reverse mortgage may vary from one financial institution to another.
- The processing fee of a reverse mortgage varies from 0.15% - 1.50%, depending on the bank.
- Borrowers can prepay the loan at any time during the loan tenure at no prepayment penalty or charges.
- If the borrower outlives the loan tenure, he/she could continue to stay in the house. The lending institution may however cease the monthly payments. The settlement of the loan is done only after the death of the borrower.
- If one of the spouses dies, the other can continue living in the same house. Only on the death of both members, settlement of the loan will take place.
The loan could be foreclosed by the lender if-
- The borrower has not stayed in the house for a continuous one year.
- The borrower has not paid property taxes and fails to insure the home
- If the borrower declares himself as bankrupt.
- If the mortgaged property is donated or abandoned by the borrower.
- If the borrower makes changes in the residential property, that could affect the loan security for the lender. This could be renting out part or the entire house, the addition of a new owner to the house's title or creating further encumbrance on the property.
- If the government under statutory provisions seeks to acquire or condemn the residential property for health or safety reasons.