Reverse Mortgage Scheme

Introduced by the union government in 2007, the Reverse Mortgage Scheme enables a senior citizen to mortgage their house or property to a lender, who then makes periodic payment to the borrower. The lender could include a bank or a financial institution. The borrower continues to reside in his house till the end of his life, and receives a periodic payment for it. The borrower is not required to service the loan in his lifetime and does not need to pay principal and interest to the lender every month. After the borrower dies, or leaves his property permanently, the loan is repaid along with interest, by the sale of property.

The purpose of this scheme is to provide a source of regular income for senior citizens in the form of monthly payout or combination of monthly payout.

Eligibility

This scheme is eligible for an Indian citizen above the age of 60 years, owning self-acquired and self-occupied residential property in India. The scheme can be obtained singly or jointly with a spouse. The spouse should be older than 55 years and the number of surviving spouse on the date of sanction should not be more than one.

The residual life of property should be at least 20 years and it should be free from encumbrances. The borrower should use that property as his permanent primary resistance. It should be a self-acquired and self-occupied residential property where a person spends most of his time.

Few features of the loan include:

  • The maximum loan is up to 60% of the value of the residential property.
  • The maximum period of property mortgage is 15 years with a bank.
  • The borrower can apply for monthly, quarterly, annual or a large sum together at any point.
  • The property is reevaluated every 5 years.
  • The amount received is considered as tax and not income, thus there is no tax liability.
  • A penalty of 2% on the average balance of the past 12 months is charged if the loan is shifted from one bank or financial institution to the other.

If one of the spouses dies, the other can still continue living in the same house and prevail the loan. If both die, the bank will give their heir two options:

  1. Either settle the overall payment with interest and retain the house, or
  2. Bank will sell the house and use the money to settle the loan.
How is this beneficial to senior citizens?
  • It is the exact opposite of a home loan, thus elders do not have to depend upon anyone for money during emergencies or for daily expenses.
  • This scheme has a very simple eligibility criterion. Anyone above the age of 60 with a self-acquired and self-occupied property can avail this scheme.
  • It allows elderly to get a steady monthly income by mortgaging their house.
  • It has a flexible payment option. Borrower can take the money monthly, quarterly, yearly or during any emergency.
  • Since the money received is considered as a loan and not income, it is free from tax liability.
  • The loans can be paid any time during the tenure with interest without extra charge.
  • The house owners are protected against inflation.
How can senior citizens avail this scheme?

Following are the financial institutions that provide this scheme in India:

  • Dewan Housing Finance
  • State Bank of India
  • Punjab National Bank
  • Bank of Baroda
  • Central Bank of India
  • Union Bank of India
  • LIC Housing Finance
  • Indian Bank
  • Andhra Bank
  • Corporation Bank
  • Canara Bank

A form for the scheme is available online as well as in the offices. The form should be submitted along with proof of identity (passport, pan card, employee identity card), proof of address (electricity bill, telephone bill, ration card), Pan Card, property papers (proof of ownership, title deed), 3 photographs or any other document required according to the form.

Next, the amount is sanctioned and approval is given for a specific loan amount based on the value of property and repayment capabilities.

Then the loan is disbursed within 7 days.

Current Category: Reverse Mortgage Scheme
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