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All you need to know about reverse mortgage

Reverse mortgage can serve as a good alternative source for funding retirement for senior citizens who own a house.

Mar 2023

4 mins read

Senior citizens who own a house and don’t have enough corpus to take care of their retirement expenses have the option of getting a reverse mortgage loan from a bank to secure their post-retirement phase. Lack of social security and pension makes reverse mortgage an attractive option for the elderly in India.

So instead of selling the house to fund your retirement or any other major expense, a reverse mortgage can be an good alternative. It also gives you the comfort and security of staying in the same house till you permanently move out of the house.

Let us understand what reverse mortgage is.

In a traditional home loan, you pay a regular Equated Monthly Instalment (EMI) to the bank. A reverse mortgage is exactly the opposite. The bank pays you an amount at periodic intervals (monthly/quarterly/half-yearly/annual) or lumpsum payment in more or more tranches. The loan amount is usually 40 to 60% of the property value, depending on your age.

You have the option of repaying the loan. The loan becomes payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out of the home for care, to an institution or to relatives.

Eligibility

Resident individuals aged 60 years (single borrower) can avail this loan. In case of joint borrowers, the spouse’s age should be more than 58.
The property must be owned by you, not rented, and you should use it as your primary residence. It’s residual life should be at least 20 years.
The residential property should be free from any encumbrances.

Loan Amount

The loan amount depends on the borrower's age and the prevailing interest rate. The tenure ranges from 10 to 15 years, depending on the age of the borrower while the loan amount ranges from Rs 3 lakh to Rs 1 crore. (Source: SBI)

Charges

Origination, appraisal and inspection fees by the appraiser
Verification Charges of external firms
Title Examination Fees
Legal Charges/Fees
Stamp Duty and Registration Charges
Property Survey and Valuation charges

Tax

The amount received by you in the form of loan is exempt from income tax under Section 10(43) of the Income-tax Act, 1961. However, you are liable to pay capital gains tax when the bank sells the property to recover the loan amount. (Source: National Housing Bank)

Smart things to know about reverse mortgage:

The property valuation is done every five years.
A commercial property cannot be mortgaged.
Loan can be taken on the unencumbered value of the property. The loan amount can change based on re-valuation of property at the discretion of the lender.
The maximum lump-sum payment is capped at 50% of the total eligible amount of loan subject to a cap of Rs 15 lakh for medical treatment (yours, spouse’s and dependent).
A three day window is provided to cancel the transaction. If the loan amount has been disbursed by the bank, the entire loan amount will need to be repaid in three days.
Borrowers have to insure the property against fire, earthquake, and other calamities.
You have to pay all taxes, electricity charges, water charges and statutory payments when due.
Your equity in the house reduces every year.
Use of loan amount for speculative, trading and business purpose is not permitted.
The loan becomes payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out of the home for care, to an institution or to relatives.
If the loan is unpaid, the bank recovers the principal and interest by selling the house.

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PGIM India Asset Management Private Limited

(CIN - U74900MH2008FTC187029)

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Email: care@pgimindia.co.in

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