Reverse Mortgage Loan Blog

Imagine what would be the plight of senior citizens with no source of income left for them, when younger people who are earning well these days find it difficult to finance their personal expenses! Old age comes with both financial and physical problems. The rising cost of living and healthcare compounds the problem even more. With the exception of government employees, who receive some amount as pension, the other salaried individuals and self-employed people, find themselves financially insecure after retirement, particularly in the absence of any support and savings.

However, the senior citizens need not be disillusioned now, as reverse mortgage offered by a few banks in India could bring some succor to them after retirement. Senior citizens who own properties in their names, but are not able to liquidate them, can use this scheme as a regular source of income every month. The scheme was introduced by the government in Union Budget 2007-2008.

Under the scheme, a senior citizen who is not having regular income, but owns a property, can pawn the same with a housing finance company (HFC) or bank and get regular payment in return. The best part is the person can stay in the house for the rest of his life and also receive regular payment. In case the person dies or leaves the house, the bank reserves the right to sell off the house in order to recover the loan. The maximum loan which you can get is up to 60% of the value of residential property and maximum tenure of property mortgage is 15 years. Also the amount you get monthly is considered as a loan; hence it will not be taxable.

The scheme sounds very promising so far; however, there are some potential downsides we must consider before going for it. It may not prove fruitful to us under all circumstances.

Given the fact, that under reverse mortgage scheme, you get some monthly amount from the bank for meeting your daily expenses, but what if you suddenly require some big amount for any emergency. Let`s consider the case of one Mr. Motwani aged 62, having a house worth Rs 8 million having no source of income left with him. He applies for a reverse mortgage scheme, and gets some amount as regular payment from the bank. He meets with a health hazard suddenly, and requires about Rs 0.2 to 0.3 million for medical treatment. The bank will not pay him lump sum amount for his treatment, and also he cannot sell his house as it is mortgaged with the bank. He thus finds himself in terrible plight to arrange funds for his medical treatment. It will thus be advisable for anyone to first get himself and his spouse adequately insured in terms of critical illness and health insurance before opting for the scheme.

Reverse mortgage may not be a very feasible idea, in case of senior citizens with family clashes, mostly with their children not allowing them sell the house even if it is an ancestral house.

Elderly people, who have spent most part of their life paying off their home loan, will find it very hard to incur another debt and keep their house on mortgage. Also closure and servicing costs associated with the scheme are very high, so it will be advisable only if annuity is required for longer term.

Hence, before you actually `Reverse Mortgage` your house, thoroughly evaluate the pros and cons of it.

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