At reaching old age if you have not any regular source of income or which does not meet the rising cost of living, it is very difficult to live. Also at this age to work and earn can make life miserable. Even there are many cases in society that many Parents have to spend their remaining life at Old Age Homes in spite of having children. Parents do a lot for their children from their birth till they get settled and in turn some children sent their parents to these old age homes.
Reverse Mortgage is very useful Financing Tool to Senior Citizens. It is also called Lifetime Mortgage.
In India, Union Budget 2007-2008 introduced the ‘Reverse Mortgage' scheme which was very popular in Western Countries.
Reverse Mortgage is very useful Financing Tool to Senior Citizens (Over 60 years of Age). It is opposite of Regular Loan.
In Reverse Mortgage, borrower must own a House which is mortgaged to lender and in turn borrower gets periodical payments from lender as opposite of Regular Loan.
Borrower is not required to repay loan during his lifetime to the lender.
 SALIENT FEATURES OF REVERSE MORTGAGE [As per NHB Guidelines]:
2.1 Senior Citizen above 60 years of age can avail Periodical payments from the lender against the mortgage of the house and also remains the owner of the house and can live in the house.
2.2 The Senior Citizen borrower is not required to repay the loan during his/her lifetime and therefore does not make monthly repayments of principal and interest to the lender.
2.3 The loan amount is dependent on the value of house property as assessed by the lender, age of the borrower(s) and prevalent interest rate.
2.4 The loan can be provided through monthly/quarterly/half-yearly/annual disbursements or a lump-sum or as a combination of the three.
2.5 The maximum period of the loan is 20 years.
2.6 The loan amount can be used by borrower for various purposes however use for speculative, trading and business purposes is not permissible.
2.7 Valuation of the residential property would be done at such frequency and intervals as decided by the lender, which in any case shall be at least once every five years.
2.8 The borrower(s) will continue to use the residential property as his/her/their primary residence till he/she/they is/are alive.
2.9 The Borrower(s) will never owe more than the net realizable value of their property, provided the terms and conditions of the loan have been met.
2.10 On the borrower’s death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property.
2.11 The borrower(s)/heir(s) can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.
2.12 The borrower(s) or his/her heirs also have the option of prepaying the loan at any time during the loan tenor or later, without any prepayment levy.
 ELIGIBILITY FOR GETTING REVERSE MORTGAGE LOAN:
3.1 He/she should be Senior Citizen of India above 60 years of age.
3.2 Married couples are also eligible as Joint Borrowers subject to that at least one of them being above 60 years of age and other not below 55 years of age.
3.3 He/She should be owner of a self occupied residential property (whether house or flat) located in India with clear title.
3.4 The residential property should be free from any encumbrances.
3.5 The residual life of the property should be at least 20 years.
3.6 The prospective borrowers should use that residential property as permanent primary residence which refers to the self acquired, self occupied residential property where a person spends majority of his time.
 TAX IMPLICATIONS:
4.1 Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government shall not be regarded as a transfer.
4.2 Any amount received by an individual as a loan, either in lump-sum or in installment, in a transaction of reverse mortgage referred to in clause (xvi) of Section 47 of the Income-tax act shall not be included in total income.
4.3 All payments under RML are exempt from income tax under Section 10(43) of the Income-tax Act, 1961.
 LOAN REPAYMENT:
5.1 The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out of the home for aged care to an institution or to relatives.
5.2 Settlement of loan along with accumulated interest is to be met by the proceeds received out of Sale of Residential Property.
5.3 The borrower(s) or his/her/their heirs/estate shall be provided with the first right to settle the loan along with accumulated interest, without sale of property.
5.4 The balance surplus (if any) remaining after settlement of the loan with accrued interest, shall be passed on to the legal heirs/estate/beneficiaries of the borrower.
5.5 The borrower(s) will have option to prepay the loan at any time during the loan tenor without any prepayment levy/penalty/charge for such prepayments.
CA Dimple Majethia