Brief About Reverse Mortgage Loan for Senior Citizens
India, one of the largest countries in the world, also boasts one of the youngest populations in the world. However, recent studies show that the median age of India’s population is continually increasing, from 4.95% in 2008 to 6.18% in 2018.
The increasing number of older citizens necessitated several steps to ensure a better post-retirement life for the populace. From healthcare plans to financial schemes like reverse mortgage loan, both the Government and financial institutions have taken necessary steps to ensure the elderly do not face severe financial shortcomings after their retirement.
What is a reverse mortgage loan?
Reverse mortgage is a type of advance that allows homeowners to mortgage their property and convert a part of its equity into cash. It was introduced as a means to help senior citizens with a regular source of income, so that they can pay for monthly expenses, healthcare and emergencies.
It is called a reverse mortgage loan because a lender makes payments to the borrower, unlike conventional mortgage loans where a borrower pays EMIs to their lender.
This type of mortgage loan was introduced in India in 2007 as a means to improve the life of house-owning retirees.
- Zero end-use restrictions
The advance availed as a reverse mortgage loan does not come with any end-use restrictions. It allows senior citizens to utilise their funds according to requirements. They can even pay for medical expenses with the help of these credits without depleting their savings.
- No repayment obligation
Reverse mortgage schemes do not come with stringent repayment clauses. Borrowers hold the right to reside in their mortgaged property and receive financial assistance for their lifetime. Even in case of a borrower’s demise, his or her spouse retains the right to use this property for the remainder of their life.
The borrower or their next of kin can also choose to repay the loan amount to gain the ownership of the property so mortgaged. Affordable mortgage loan interest rate helps keep the overall repayment to a minimum.
In case an individual does not repay the borrowed sum, the financial institution auctions the mortgaged property to recover the loan amount. In this case, they will only be liable to auction the property once both the borrower and his or her partner are deceased.
These loan schemes also come non-recourse, as the lender cannot hold both the borrower and their next of kin liable for repayment. Disbursals may be near the mortgaged property’s value, but the clause will remain unchanged.
- Easy to meet eligibility criteria –
Most financial institutions require only minimum eligibility criteria to screen prospective customers for a reverse mortgage loan. Lenders usually look for –
- Hold ownership of a property to be a mortgage. They should also be the permanent residents at the provided address for more than 20 years.
- The property should not have any prior liability or litigation’s.
- Tax benefits
Under the Income Tax Act of 1961, all income received under this type of mortgage loan is exempted from tax. A retiree can save more on their income, thanks to the eliminated tax liability on the advance. Additionally, if the funds are used for renovating or repairing one’s home, the borrower can claim exemption from their taxable income.
Similar financial products
Individuals who do not fulfill all the eligibility criteria of a reverse mortgage scheme or seek alternatives can opt for similar financial products such as a loan against property to mitigate their emergency financial requirement. Such credits allow you to avail an advance against a mortgaged property; payment as EMIs is made throughout the loan tenor towards credit repayment.
Loan against property carries several unique advantages over other forms of credits. These are high-value loans, offering as much as Rs.3.5 crore to eligible applicants. Borrowers can choose a repayment tenor of up to 20 years, and enjoy minimum charges on loan against property.
These types of secured credits usually come with easy to meet eligibility criteria and documentation. Applicants can check the list of documents required to apply for a loan against property from their preferred lender’s website.
Reverse mortgage loans are the ideal financial product for retired individuals, whereas loan against property can offer financial backing to people who are still employed as well. These can help mitigate any monetary shortcomings one might face without depleting their life’s savings.
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