What is Reverse Mortgage?
I am sure very few people have heard about this term. With increase in the nuclear family system and urbanisation senior couples are forced to meet their needs by themselves . To help these senior citizens government of India have introduced this scheme in 2008.
This scheme is exact ‘reverse’ of plain home loan scheme. In case of a home loan one takes a lump sum loan and repays it in instalments in future. Under the reverse mortgage scheme, you get instalments and the loan is repayable in lump sum in future. Here, the payment stream comes to the borrower for a fixed period of time in the form of monthly, quarterly or yearly payments.
The money receivable under regular reverse mortgage scheme money so borrowed can only be used for the genuine needs of the owner like medical emergencies, day to-day expenses, repairs and renovation or repayment of loan taken for the same property.
Features :
- Can be availed by any person who owns a house and has completed 60 years of age / if a couple is availing then one person should be over 60 years of age and the other 55
- Maximum permissible payment limit - Rs 50,000/month
- Option of getting a lump sum which cannot be more than 50% of total eligibility subject to maximum of Rs15 Lakhs.
- You need to mortgage your own residential house in which you are living ( Primary House).
- Moreover the property should be self-acquired, implying you cannot get a loan on inherited property or any property received by you as gift.
Tenure , Rate of Interest and repayment :
As per the provisions of income Tax act, 1961, the act of mortgaging the property for the purpose of securing reverse mortgage is not treated as transfer affecting any tax liability.
Moreover the money received by the owner of the property under reverse mortgage shall not be treated as income and a specific exemption has been provided under Section 10 (43) of the Income Tax Act.
However it is important to note that as and when the property is disposed of, either by the bank or the borrower or its legal heirs, the normal provisions of capital gains will apply and the owner or his legal heirs shall be liable to pay capital gains tax as per the provisions applicable to general sale of property.
However if the legal heirs decide not to sell the property but pay the outstanding dues fully, no tax implications will arise as redemption of the property does not amount to transfer. So from the above it becomes very clear that reverse mortgage is the golden walking stick in the hands of senior citizens in their old age and has come to rescue of such senior citizens who stay in their own house.
For availing the reverse mortgage loan you have to submit some basic documents like your permanent account number (PAN), list of legal heirs and copy of the registered will. Moreover you need to provide the details like cost and area of the property to be mortgaged.
This is actually a life saver instrument for Senior citizens but sadly very few people know about it . So please spread the knowledge about this income opportunity , you never know you may help some senior citizen make a living.
What are your views about this income instrument ? Do you think senior citizens are suffering because of lack of awareness ? Would you suggest this scheme to anyone?
- Ritika Agarwal - CFPCM
