Reverse Mortgage Scheme

What is reverse mortgage scheme?

As the name suggests, it's the opposite of a loan for a home, it's taking a 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 of 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.

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How does it work?

Reverse mortgages offer a unique option for senior citizens in India to access the equity they've built up in their homes. This allows them to receive regular payments from a lender without having to sell the house or move out. However, each bank may have specific requirements for applicants.

However, there are some requirements to qualify for this loan as follows:

• Age: You must be at least 60 years old. If applying with a spouse, your spouse must be at least 55. There's no upper age limit.
• Debt-free property: The house you use for the loan must be free of any existing loans or financial obligations.
• Property condition: Ideally, the property should be less than 20 years old.
• Primary residence: The property must have been your primary residence for at least a year.
• Loan amount: The minimum loan amount varies but can be as low as ₹3 lakh. The maximum is typically ₹1 crore.
• Previous home loan: If you have a current home loan on the property, you'll need a No Objection Certificate (NOC) from the lender before applying for a reverse mortgage.

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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.

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When does loan become due?

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.

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Challenges and Potential of Property-Backed Schemes in India

This scheme has not been able to do well in India due to a lack of awareness and because of the fact not everybody is comfortable 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 sentiments and legacy. If proper guidance and awareness are spread about it, then the scheme has a lot of potential to take off and create a wave.

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