You must have heard the famous saying "You can only perceive real beauty in a person as they get older". Age is just a number. You are never too old to set another goal or to dream a new dream.
Unfortunately this is a time when you are retired and can no longer work. Expenses are rising. Those fruits which used to cost a few paisa in your younger days now cost several rupees. Everything is so costly these days.
With no certain income managing livelihood expenses for you and your spouse is a nightmare. In this time of need your house can come to your rescue. There is a special financial product called "Reverse Mortgage" designed specifically for senior citizens.
A reverse mortgage is similar to a home loan but works in the exactly opposite direction.
You avail a home loan from a bank to buy a house. You repay the home loan (Principal + Interest) in installments called EMI’s (Equated monthly installments) within a fixed time period (tenure of the home loan).
In a reverse mortgage you borrow against the value of your home. You mortgage your house to the bank (pledge your home) and the bank makes payments to you as a lump sum or in periodic installments (say once a month).
You and your spouse continue to live in the house and on the death of the last survivor (you or your spouse) the loan (reverse mortgage) needs to be paid back to the bank with interest.
The bank gives the first opportunity to your heirs (children/family) to pay off the loan and reclaim the house.
Reverse mortgage can only be availed if you are 60 years or older. If your spouse is a co applicant (stands guarantee to the loan) she should be at least 58 years of age.
You need to be the owner of the residential property and reside/live on it. The property needs to be within India. If you own more than a single property you can mortgage only the property on which you live. Reverse mortgage cannot be availed on a commercial property.
The property needs to have a clear marketable title and should be free of any encumbrances (dues). Your property needs to have a residual life of at least 20 years.
Your home is pledged with the bank and you get a loan under reverse mortgage up to 60% of the value of your property (Loan to value ratio of 60%).If your property is in good condition, you can get a loan under reverse mortgage up to 90% of the value of your property.
The value of the house is calculated at current value (market value) at the time of availing the loan .Even if the value of the house appreciates with time you do not get any additional loan amount.
Payments to you by the bank under reverse mortgage are made on a monthly, quarterly or an annual basis. The maximum monthly payments you can get under a reverse mortgage is INR 50,000 a month. In case of emergencies such as a medical emergency, you can avail a lump sum amount up to 50% of your eligible loan amount or a maximum of INR 15 Lakhs whichever is less.
You have a minimum tenure of 10 years (time period you get payments from the bank) for the reverse mortgage. The maximum tenure can extend for 15-20 years.
The bank revalues/checks the property every 5 years. The property needs to be maintained well so that you get the most of your house/apartment. You are the owner of the house and all costs and taxes on the house have to be paid by you.
The bank makes payments to you under a reverse mortgage either monthly, quarterly or annually. Interest has to be paid at 10-11% per annum on these borrowed amounts.
If the maximum tenure of your reverse mortgage is 20 years and you outlive this tenure, the payments by the bank will stop but interest will continue to be charged on the borrowed amounts.
However the borrowed amounts with interest under a reverse mortgage are not repaid by you (senior citizen) or even your spouse. You can continue to live on your property, and after you, your spouse can continue to reside on this property.
On the death of you and your spouse, your legal heirs have the option to pay back the reverse mortgage (borrowed amounts + interest) and reclaim the property.
If they are unable/refuse to do so, the bank auctions the house and takes its share (loan amount + interest).The remaining amount is given to the heirs/family.
The amount you receive under reverse mortgage is a loan and not an income. You do not have to pay any tax on these amounts.
Remember… Reverse mortgage is a loan of the last resort. If you have a sufficient retirement corpus (Money saved in your youth for your old age) then perhaps you don’t need a reverse mortgage. But if you live by this saying "I’m going to retire and live off my savings. What I’ll do the second day, I have no idea" then you need reverse mortgage.
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