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Wednesday 3 March 2021
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Everything you Need to Know about Reverse Mortgages

Everything you Need to Know about Reverse Mortgages

Retirement is a phase of life that everyone plans for financially to ensure that their golden years go by as smoothly as possible. Here, it is quite common for many to invest their wealth, rely on pension and even liquidate some assets to comfortably fund the coming years. However, if you haven’t prepared for it adequately and only have a property to your name, then the option of a reverse mortgage may be just the solution you need.

The reverse mortgage scheme was launched by the central government in 2007 and is something that can help senior citizens addresses their need for funding during retirement. Here, as the owner of a property, you mortgage your property with a lender but instead of paying EMIs, the lender pays you a fixed amount. In return, the lender is permitted to sell the pledged property once you pass and any excess earnings are given back to your legal heirs.

What are reverse mortgage loan eligibility criteria?

The first and most important eligibility term to remember with a reverse mortgage is that the applicant must be over the age of 60 years. This is the base requirement, following which, these are the other terms to keep in mind.

  • To apply for a joint reverse mortgage loan, the spouse of the primary applicant has to be over the age of 55 years
  • The applicant must be the owner of the property
  • The property being pledged must be the permanent residence of the applicant
  • The property being pledged cannot be inherited or gifted, it must be self-acquired
  • The property being pledged has to have existed for at least 20 years
  • The property cannot be let out or used for any commercial practices

These are terms you need to meet if you intend to opt for this option once you retire. Keep in mind that the age requirement for joint applications differs across lenders and some may require the spouse to be at least 58 years of age.

What documents do you need to avail a reverse mortgage?

In order to avail a reverse mortgage, these are the documents you require.

  • Property details
  • Aadhaar card
  • Permanent Account Number (PAN)
  • Bank statements
  • Income documents
  • Qualification certificate, for self-employed professionals

These are indicative list of documents and the requirement of documents might differ depending on the lenders.

Are there any special reverse mortgage benefits?

Opting for a reverse mortgage does have its benefits, and this can be quite a blessing during your golden years. Take a look the pointers below:

  1. Any renovations or repairs made to the house with the money you receive from the lender is eligible for a deduction when computing your income tax
  2. Any income you receive from the lender is completely tax free
  3. The repayment of this loan at the end of the term isn’t considered as deductible

When it comes to reverse mortgage & reverse mortgage benefits, India and its senior citizen population didn’t take to the scheme very well. The main reasons for this include the lack of awareness, poor understanding of the product and the attachment to assets. It is part of Indian culture and tradition for parents to pass on their property to their children. This carries on for generations, so the idea of a reverse mortgage doesn’t sit well emotionally. In fact, seniors are more likely to sell larger properties and relocate entirely with the earnings as opposed to going the reverse mortgage route. However, there is value in the offering, and if you’re looking to set up a steady stream of income during your golden years, the reverse mortgage scheme is a way to do that.