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How Does Reverse Mortgage Work In India?

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A reverse mortgage available for a senior citizen above 60 Years is exactly opposite to that of a home loan mortgage. In a home loan mortgage one borrows a lump sum amount and has to pay back these amounts as a series of Equated Monthly Installments over a fixed tenure.The EMI has a principle and an interest component. The home is pledged as security and is seized in case of non repayment of the loan amount. In a reverse mortgage the home or property already owned is pledged provided it has no existing loan against it. The title of the house continues to remain in the name of the owner, in this case the senior citizen.The bank or Housing Finance Company in this case makes a series of payments or cash flows for a fixed period of time which might be for a maximum tenure of 15 Years and in some cases can go up to 20 Years.The payments are received from the bank on a monthly, quarterly, annual or a lump sum basis.

The amounts received under the reverse mortgage scheme from the bank are considered as a loan or a liability and no tax is paid on these amounts. These loans are typically fixed but floating rate loans are available which fluctuate in lieu of the market conditions. The home needs to be in the name of the senior citizen and must not be let out or given for rent even on a partial basis. The title of the home is in the name of the senior citizen and he continues to pay the maintenance, tax and repair charges. The reverse mortgage payments are made by the bank typically for a period of 15 Years in the form of a reverse EMI after which the payments stop. Higher the age of the senior citizen more are the amounts required by him to maintain himself and consequently higher is the amount available as a loan to value ratio under the reverse mortgage scheme. The owner and his spouse continue to stay in this house even though he might outlive the tenure of the loan. The interest amounts keep accumulating until the loan is settled. The loan becomes due only on the death of both the senior citizen and his spouse.The reverse mortgage amount becomes due along with the interest component when the senior citizen decides to sell the house or both he and his spouse go to their heavenly abode. When both the borrowers die the bank gets in touch with the legal heirs of the property and gives them the option to settle the pending loan amounts along with the interest component and take possession of the house. If the legal heirs are not able to do so the bank auctions the property and uses the proceeds to collect back the loan amounts along with the interest component and the rest of the amount is given to the legal heirs. The property appreciates with the passage of time as long as the senior citizen maintains it well and concentrates on its general up keep. This is viewed as a major benefit and serves as an incentive for the legal heirs to reclaim the property by paying off the dues as well as an emotional attachment of the legal heirs towards the property. The needs of the senior citizen are well taken care of and he continues to stand on his own feet even in his old age. Under the reverse mortgage mechanism the elderly citizen forces his children to support him in his elderly years.

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