Sanjay Dubey was a manager in a reputed company in Pune. After his retirement in 2012, he and his wife were dependent on his savings for their living. The high cost of living in a hi-tech city like Pune along with their increasing medical expenses was making it difficult for them to survive. They really needed a strong source of income as their only son was settled in the foreign and didn’t have any plans to come back to India.
One day, a friend of Mr. Dubey, who was a bank executive, told him about Reverse Mortgage Loan. He also told him that it would take care of their monthly expenses. He applied for the loan after understanding the whole process. This decision of him solved all his financial problems. It became easy for him to afford their monthly as well as medical expenses. Now he will be able to live in his house and also get a fixed amount of money against the property.
So, what is a Reverse Mortgage Facility?
This loan is just the opposite of a traditional home loan. The bank or financial institution decides the cost of the home as per its condition, demand and the current prices of property. Once a property is mortgaged and the required checks are completed, a loan as regular payments is given by the bank after considering interest costs and account price fluctuations.
The borrower can get the loan amount on a monthly, quarterly or annual basis. It can be a lump sum also. With every payment, the interest or the equity of the borrower is decreased. This loan does not attract any tax as the amount received is a loan and not an income. But when the property is alienated, the borrower may have to pay a capital gains tax.
What are the Guidelines for Reverse Mortgage?
Some guidelines are established by the Reserve Bank of India for this loan. The amount of the loan can be up to 60% of the value of the property. The loan can have a tenure of 10 to 15 years. Some banks also provide this loan for up to 20 years.
The minimum age required for the owner of the house to apply for this loan is 60 years. The spouse’s age should be at least 58 years if he/she is a co-applicant. The property should be self-acquired, self-occupied and encumbrance-free. It should be in India and possess a life of 20 years. Also, it should be the primary residence of the borrower.
A property revaluation must be done every 5 years by the lending bank. If the property’s value increases, the loan amount can be increased by the borrower and the incremental amount can be received as a lump sum.
This loan against property is a boon for our senior citizens who don’t have a steady income source and whose children do not support them financially. So, the demand for Reverse Mortgage Loans are increasing day by day.
