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What is Reverse Mortgage Scheme??


Prabeer (B. COM (H) CA & CS Final)     17 December 2008

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What is Reverse Mortgage Scheme??

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Ravikumar.G (Consultant)     17 December 2008

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 A reverse mortgage  is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care). A reverse mortgage is analogous to an annuity where the principal and interest are paid with homeowner's equity.

In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.

If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the only mortgage on the property

martinhillman (appraiser)     23 April 2009

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Originally posted by :Ravikumar
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florlyn (Degree Holder)     14 May 2009

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A reverse mortgage allows homeowners who are 62 or older to borrow against their home's equity. The homeowner can theoretically borrow until the principal and interest of the loan reaches the amount of the home equity. In a reverse mortgage, a borrower doesn't have to repay until they sell their home, move out permanently, or die. If a borrower dies, the heirs are then responsible for the loan. This is usually paid off by selling the home or by refinancing into a traditional mortgage. A reverse mortgage is an excellent product if you are elderly and need additional income to live on. However, the funds can be used for anything. If you are considering a reverse mortgage, talk to your family, your attorney, your financial representative or whomever you discuss your major financial endeavors with.

Reverse Mortgage

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CA. Megha Topiwala (Job)     11 June 2009

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plz provide me with the latest details of tax implications on reverse mortgage scheme....

mortagageexpert (Manager)     14 July 2009

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When we start earning, the first dream which most of the people have is to purchase a home. It is a dream which takes time to become visual but with the mortgage solutions many people are fulfilling their dreams in a short span of time. But not to forget the fact that purchasing a home is the largest financial decision in our lifetime and it is of vital importance that we take this decision after serious thinking and considering all our requirements. The assets can be invested in a wide range of options to get a greater rate of return, so consumers weigh the different investment options and then go for the mortgage options. In mortgage world also you have a wide array of options like that of the open, closed, fixed, floating, long or short amortization and the prepayment options.


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Hi Megha,

The income from such reverse mortgage scheme whether received in lumpsum or in installment is exempt u/s 10(43) and sec 47(xvi) has been amendment to exempt such transfer of property from capital gain taxation.

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praveen (Chartered Accountant)     14 July 2009

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yes this was one of the questions in our last pcc exams.

KULBIR CHAHAL (ARTICLE)     15 July 2009

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HI DEAR, How it is beneficial 4 us regarding tax planning? Whether fund from this source can be used 4 any purpose?

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Balaji R K (Salaried)     15 July 2009

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Reverse Mortgage is allowed for Senior Citizens only.  And the funds can be used only for the specified purpose as mentioned in the scheme and not for any other purpose.  The amount can be utilised for day to day living expenses of such Senior Citizens post retirement.  The amount can be taken as loan either in lump sum or in installments.  If the amount taken as loan utilized for any other purpose other than as specified by the Central Govt then the exemption stands withdrawn and it is taxable in the hands of the borrower.

As mentioned by Tinku,

Section 47(xvi) states that "any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government".

Section 10(43) state that "any amount received by an individual as a loan, either in lump sum  or in installment, in a transaction of reverse mortgage is exempt".


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