REVERSE MORTGAGE - A BOON TO SENIOR CITIZENS

Most of the Financial Institutes or Banks will reject the Loan Application if the borrower is retired or nearing retirement and has no income or for some reason haven’t been able to save enough for his retirement. Most of the senior citizens struggle to meet their both end after their retirement years. There are few options available for such people. They can either sell their house, buy a cheaper house and use the remaining funds as a retirement corpus or take a Reverse Mortgage on their house. But, which option works out better?

Now, Reverse Mortgage makes this possible. Any senior citizen can get loan against his property and is not required to repay the loan and can enjoy the regular Income after his/her retirement.

THE REVERSE MORTGAGE: A RETIREMENT TOOL

A Reverse Mortgage is a loan available to senior citizens to convert a part of their self-owned home equity into income without having to sell it. Under this scheme, the Bank determines the value of the property and fixes a percentage of its current value as Loan Amount.

FEATURES OF THIS LOAN

1. The maximum loan is up to 60-70 per cent of the value of the residential property.
2. The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
3. The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
4. The value of the property is periodically re-evaluated by both the parties, the owner and the bank.
5. After the death of the senior citizen, the surviving spouse can continue to occupy the property till his/her demise. In case of the death of the spouse, 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 surplus to the heirs.

CAN SUCH PROPERTIES BE SOLD OR RENTED OUT?

Renting or Leasing a house with Reverse Mortgage is legally not possible because the house that is being used is the Principal Residence of the Reverse Mortgage Holders. However, Selling a Reverse Mortgage property is legally permitted.

HOW DOES THIS WORK?

A Home owner with a Reverse Mortgage must consider following points before selling Reverse Mortgaged Property -

• To Estimate how much he owes the Bank which includes the money received from it, plus interest and other fees the Lender can charge.
• He should have an alternative accommodation before he plans to sell his house.
• He may have to bear the foreclosure charges and also pay Capital Gains Tax.
• His heir would first need to clear the outstanding loan before he plans to purchase it through a fresh loan.

One should opt for a sale only if proceeds are large enough to facilitate another accommodation after repaying the Loan to the Bank.