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Reverse Mortgage

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Reverse Mortgage

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What is reverse mortgage?

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.

Why avail Reverse Mortgage

Income

Senior citizens get income after retirement. Loan up to 60-90% of property value may be sanctioned.

 

Tenure

If you outlive the tenure of the loan, you continue to stay on the property. Ownership continues to remain with you.

 

No Tax

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.

Emergency Money

Money can be used for medical and other emergency treatment. Useful as an income after retirement.

 
Eligibility criteria to avail Reverse Mortgage

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.
Reverse mortgage cannot be availed on a commercial property.
Your property needs to have a clear marketable title and should be free of any encumbrances.
Your property needs to have a residual life of at least 20 years.
You need a minimum CIBIL score of 700 for the final sanction of your reverse mortgage.

Key factors to consider for Reverse Mortgage

What are the documents required to avail a reverse mortgage?

  • You have to fill up loan application form.

  • You have to furnish the proof of ownership of the house.

  • You have to furnish details of your property, details of your legal heirs and so on.

 

Concepts & FAQ's Reverse Mortgage

What is a Reverse Mortgage?

A reverse mortgage provides income that people can tap into for their retirement. It is a type of loan in which the owner of a home can borrow money against the value of his home without repayment of the mortgage (principal or interest) until the borrower dies or the home is sold.

The concept of reverse mortgage of houses originated in the US, where senior citizens who left uncared for by their children could use their home to avail money in their old age.

The advantage of a reverse mortgage is that the borrower's credit is not relevant, and is often unchecked, because the borrower does not need to make any payments. The home serves as collateral, and can be sold in order to repay the mortgage when the borrower dies (in some cases, the heirs have the option of repaying the mortgage without selling the home).

Features of Reverse Mortgage

  • Any house owner over 60 years of age is eligible for a reverse mortgage loan.

  • The maximum loan is up to 60 per cent of the value of the residential property.

  • The maximum period of property mortgage is 15 years with a bank or housing finance company.

  • The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.

  • The revaluation of the property has to be undertaken by the bank or housing finance company once every 5 years.

Tax Liability : The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.

Thinking of buying a Reverse Mortgage ?

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Frequently Asked Questions

What are the eligibility criteria for availing an RML?

  • Indian Citizen above 60 years of age.

  • Married couples will be eligible as joint borrowers for joint assistance. In such cases, the age criteria for the couple would be at the discretion of the RML lender, subject to at least one of them being above 60 years of age and the other not below 55 years of age.

  • The residential property should be free from any encumbrances.

  • The residual life of the property should be at least 20 years.

  • The prospective borrower(s) should use that residential property as permanent primary residence.

Can an RML be availed against property being used for commercial purposes?

No, commercial property is not eligible for availing RML.

What is the amount of money a house owner can get under an RML?

The amount of loan available under RML depends on the age of the borrower, appraised value of the house and the prevalent interest rates of the lending institution.

Are there any ceilings on the amount of monthly/ lump-sum payments to be received by an RML borrower?

Yes, the maximum monthly payments under RML have been capped at Rs.50, 000. The maximum lump-sum payment shall be restricted to 50% of the total eligible amount of loan subject to a cap of Rs.15 lakh, to be used for medical treatment for self, spouse and dependants, if any. The balance loan amount would be eligible for periodic payments.

Is the payment received by a borrower under an RML subject to income tax?

All payments under RML shall be exempt from income tax under Section 10(43) of the Income-tax Act, 1961.

What shall be the tenure of an RML?

The maximum tenure of an RML will be 20 years. To understand the tax implications against your reverse mortgage income/loan, Call us on 080 67974000 and ask our experts!

How is the loan paid?

With a reverse home mortgage, no payments are made during the life of the borrower. Since no payments are made during the term of the reverse home mortgage loan, the loan balance rises over time. In most areas where appreciation is good, the value of the home grows at a much faster rate than the loan balance. Therefore, the remaining equity continues to grow. When the last borrower passes, or it is decided to sell the home and move, the loan becomes due. The ownership of the home is then passed to the estate or directed by a living will or will to the beneficiaries.

What happens after the death of one or both of the spouses?

If one of the spouses dies, the other can still continue living in the house. If both die, the bank will give their heirs two options -- settle the overall outstanding loan and retain the house, or the bank will sell the house, use the proceeds to settle the outstanding loan and give the rest to the heirs.

How much of an annuity income can my house generate using reverse mortgage?

The banks have so far not indicated the interest rates. However, we can safely assume that it will not exceed the interest rates used for loan against property -- which is currently in the region of 12 per cent to 14 per cent.

Does a person's age affect the amount of annuity paid?

It certainly does. Higher the age, higher the annuity! Everything else remains the same. Call us on 080 67974000 and learn more about reverse mortgage!

Advantages of Reverse Mortgage

  • Income Supplement: Enables house-owning Senior Citizens having inadequate income to meet their financial needs for renovation/repairs to house, medical & other personal purposes.

  • Retaining ownership: The borrower continues to retain ownership of the house.

  • Social Security: In the absence of social security for Senior Citizens, RML serves as a partial substitute.

  • No Repayments: A borrower does not have to repay a RML during his or her lifetime or till such time he or she continues to stay in the house.

  • Freedom and Flexibility: Amount availed under a RML may be utilized for any purpose other than investing in shares, real estate, trading etc.

 

Reverse Mortgage Articles

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Reverse Mortgage News

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HDFC raises USD 504 mn via rupee denominated bonds

Saturday, March 25, 2017, 7:59 AM

Mortgage firm HDFC Ltd today raised about USD 504 million through rupee denominated bonds to fund its business expansion. This is the largest issuance of masala bonds out of India, HDFC said in a regulatory filing on stock exchanges. Under the Medium Term Note programme, the Corporation earlier today launched an issue of Rs.2,000 crore (USD 306 million) plus a green-shoe option, it said.
 

Reverse Mortgage Videos

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Reverse mortgage loan in Telugu । Money Doctor show Telugu | EP 204

Reverse mortgage loan in Telugu । Money Doctor show Telugu | EP 204

9 Months Ago

సొంత ఇంటి లోనే వుంటూ అదే ఇల్లు నిసెక్యూరిటీ గ పెట్టి జీవితాంతము పెన్షన్ పొందడం ఎలా ?  
How to Get Loan after Retirement - Reverse Mortgage Loan | CNN News18 | EP 73

How to Get Loan after Retirement - Reverse Mortgage Loan | CNN News18 | EP 73

1 Year Ago

Retirement Planning can be done through a property in 2 ways. You can actually create rental income. If your properties are in big cities then you can actually avail reverse mortgage on this property. When you turns 60 you can apply for Reverse Mortgage. Banks may fund you up to  60-70% property value through a reverse mortgage and whenever you avail loan through reverse mortgage you don't have to repay neither the principle nor the interest as long as you are there as long as your spouse is there. You can also Create Commercial property which can give you higher rental income.

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