All about reverse mortgage loans: Eligibility, interest rate, repayment norms etc.

A reverse mortgage is a method in which the bank pays the homeowner, more specifically, senior citizens. For most seniors, their home is the only large asset they hold, and a reverse mortgage allows them to draw income from it without selling, moving out, or paying tax on the proceeds under Section 10(43) of the Income Tax Act. As per experts, most families discover this benefit too late to use it properly.

The reverse mortgage home loan as a financing facility was introduced in the Union Budget 2007-08. In it, senior citizens facing financial crunch and seeking some regular income for meeting retirement needs are catered to. Primarily, a senior citizen’s home equity is converted into regular income without actually selling the property.

Senior citizen aged 60 years and above For married couples, one of the senior citizens should be over 60 years, and the other should be less than 55 years. They will secure the facility as joint borrowers. Should be the owner of a self-acquired/ inherited, self-occupied house property free from any encumbrance. The title should clearly reflect the prospective borrower’s ownership.

The loan amount can be between 40-80% of the property’s valuation. Here, the disbursal is mostly granted as annuities instead of a complete lump sum amount.

Further factors taken into account for the sanction made under a reverse mortgage include: Property valuation or assessed value Borrower’s age And lender-specific limits

Lender-specific limits vary across banks in India, and it can be as high as ₹10 crore in metro cities by lenders like State Bank of India and IDBI Bank.

Other than the usual retirement financial needs, one can also go for a reverse mortgage to meet all the requirements below, including

Home upgrade, extension etc. Maintenance or insurance of the residential property Family exigency, medical needs, for supplementing family income but not for any speculative business or trading activity.

The reverse mortgage loans are pegged to the marginal cost of funds-based lending rate (MCLR) or a fixed rate. These rates are usually higher than the standard home loan rate. Furthermore, interest rates are reviewed after a span of 5 years with the revaluation of the property.

Loans often use a fixed rate that is reviewed every 5 years, along with property revaluation.

As in the typical loan, your liability to clear the debt does not start immediately upon securing the loan. Herein, the repayment liability arises after six months of the death of the last surviving senior citizen or in a case when the senior citizen moves out of the home permanently.