Reverse Mortgage Scheme

Reverse Mortgage scheme which was announced in 2007 by the Indian Government for senior citizens is solid evidence that being western is not bad after all as this scheme was highly popular and successful in the west before making debut in India in 2007.

The scheme was launched with an aim to provide steady income to the senior citizens who owns a house property but does not have any income source in their sunset years.

As the name suggests its opposite of loan for home, its taking loan by mortgaging your house from Banks and Financial Institutions. However, there are certain conditions regarding this loan:

• Only senior citizens or house owners above 60 years age are eligible for a loan under this scheme having self owned house property.
• The maximum period of mortgage of house property under this scheme is 20 years as prescribed by the government or as per the policy of the lender. However, the house property will be sold only after the death of the borrower regardless of the tenure of the loan.
• The loan can be availed in terms of monthly installment, quarterly installment or lump sum receipt.

Tax Implications:

There will be no income tax liability in the hands of the borrower for the amount received against the loan whether in lump sum or in periodic installments as the same cannot be treated as income because these are capital receipts against the loan and, hence, exempt under Income Tax Act. However, capital gain, if any, on sale of the House Property will be taxable in the hands of the legal heir.

The loan becomes due for payment after the death of the last surviving spouse. The legal heir has the option to settle the loan with the accumulated interest otherwise the property will be sold to recover the loan and interest, and the amount realized over and above the loan will be distributed to the legal heir. However, the borrower has the option to pre-pay the loan along with the accumulated interest during their lifetime.

But this scheme has not been able to do well in India due to lack of awareness and because of the fact not everybody is comfortable in putting their house at stake. The concept is taking some time to sink in and get into the nerves of the people in India where the house property is highly associated with the sentiments and legacy. If proper guidance and awareness is spread about it, then the scheme has a lot of potential to take off and create a wave.