The Buyt Desk
Investing money after retirement is a luxury for senior citizens and getting a constant flow of extra income will surely be icing on the cake. Investing in retirement benefits. A reverse mortgage scheme helps senior citizens in generating additional income on the property that they own. Let’s understand how this scheme can benefit senior citizens.
What is Reverse Mortgage Scheme?
Introduced in 2007-08 by the government, this scheme helps senior citizens get supplement income and manage constant cash flow. Senior citizens can use this scheme to get some funds when they have the requirement of liquid cash on the property in their name.
Using that property as a mortgage, senior citizens can borrow some money from the bank or a financial institution. They can pay the borrowed amount in monthly installments. INR 50,000 yearly is the maximum monthly payment under this scheme.
Eligibility Criteria of Reverse Mortgage for Loan
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The candidate must be an Indian citizen and must have 60 or more years of age.
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Married couples can also apply for the loan together only if one of them must be over 60 years of age. The other partner must not be less than 55 years of age.
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The property to be mortgaged must be at least 20 years old. Senior citizens living in rented houses will not be eligible for this scheme.
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The banks or financial institutions settle down the loan quantum eligibility based on the condition of the borrower’s house. This scheme has generally a 60-80% loan-to-value ratio.
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The candidate must own an inherited, self-occupied, or self-acquired residential property in India in his/her name. The property title should clearly show the ownership of the borrower. There should be no debt, liability, or other obligations on the property.
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The minimum loan amount is INR 3 lakhs and the maximum loan amount is INR 3 crores.
Pros of Reverse Mortgage Scheme for Senior Citizens
As a senior citizen, you can claim several benefits from the reverse mortgage loan scheme –
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Tax advantages
Reverse mortgage loan payouts will not be considered as income under Section 10(43) of the Income Tax Act. So, the received income on a reverse mortgage is completely tax-free and borrowers can enjoy tax exemption on the reverse mortgage loan.
Also, the loan amount invested for home restorations is eligible for tax deductions. You can claim the home repair or renovation amount as a deduction in the calculation of income. Alongside saving the taxes, you can spend these earnings on any financial instrument for more returns.
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Multi-purposeful income
Using reverse mortgage loan payouts, you can finance your basic household spending, medical bills, debt payment, travel expenses, and other everyday requirements. You will have no end-use limitations excluding lumpsum payout. You can use this income the way you wish.
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No pre-payment charges
In the earlier days, the borrower has to repay debt for premature loan repayment and that was almost impossible for them. In the case of a reverse mortgage loan scheme, you don’t have to repay the loan. So, you would require no pre-payment penalty. The bank has a right to sell the property for loan amount recovery when a borrower dies.
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Effective use of property
Owned home property generally provides income only when it is sold off or rented. A reverse mortgage scheme helps in making the best use of your own property by earning income on it while continuing to live in it. As per the scheme, the life partner of a senior citizen can live in the house after his or her demise.
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New income source
Senior citizens can use a reverse mortgage as an additional source of income alongside traditional investment options like bank FDs (fixed deposits), post office schemes, PPF, national savings certificates, and more.
If you are more than 60 years old and want to earn some supplementary income for your owned home, a reverse mortgage scheme is worth considering.
