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Reverse mortgages offer a distinct alternative to traditional mortgage financing. They provide a financial solution for seniors aged 60 and above. You can mortgage your home to a bank and receive monthly payments.
What sets this option apart is that you can stay in your home for the rest of your life without having to relocate. The loan amount is determined by the property’s value, which depends on factors such as supply, demand, and market conditions. With each payment, your equity in the property decreases.
In reverse mortgages, the payment process is the opposite of a traditional mortgage. Instead of the homeowner paying the lender, the lender makes payments to the homeowner. To be able to borrow against their equity, the homeowner needs to be at least 60 years old and needs to have enough equity.
You can get a reverse mortgage and receive payments using your house as collateral once you meet the lender's conditions. Your age and the loan interest rate affect how much you can borrow.
The value of your house, which may change with the real estate market, also plays a role. Legally, you cannot take out a reverse mortgage for more than the home's worth. After applying, you will be informed whether you qualify and, if so, how much you may receive.
A reverse mortgage offers financial security during retirement while letting the borrower continue living in their own property. Here are some of the key benefits of choosing this option:
Financial Independence
Senior citizens can achieve financial independence and no longer have to rely on their offspring for financial support. The funds received from reverse mortgages can be used for any purpose.
Minimum Requirements for Eligibility
Reverse mortgage loans are accessible to senior individuals over 60 years of age who possess a permanent residential property. The residential property needs to be in the name of the borrower or their spouse.
Long Tenure
Reverse mortgages offer a lengthy tenure, ensuring a steady flow of income for senior citizens to meet their ongoing expenses.
Property Valuation
Banks re-evaluate the property every five years in the case of reverse mortgages. When the property's value increases over time, you have the opportunity to increase the loan amount and receive a larger lump sum.
Tax Advantages
The amount received through a reverse mortgage is exempt from income tax under the Income Tax Act of 1961. However, when the mortgaged property is sold to repay the loan, capital gains tax will have to be paid.
While the eligibility criteria vary with lenders, here is some common criteria:
Anyone over the age of 60 is eligible, and if a couple applies, the spouse needs to be older than 58
You need to own the entire property, and in case of a couple, at least one person in a couple must be the sole homeowner
The property needs to be at least 20 years old
Commercial properties or those that are rented out are not eligible
The basic documents required to obtain a reverse mortgage are mentioned below:
Proof of Identity
Proof of Residence or address
Employer Identity card
Property papers
Account statement of the last 6 months for all bank accounts held
Loan account statement for one year (if any)
Each lender may impose different fees and charges. The typical applicable charges are as follows:
Processing Fees: It is usually a percentage of the loan amount that you need to pay upfront
Statutory Charges: These include charges such as mortgage registration fees and stamp duty, among others
Valuation Fee: Some banks also charge a fee for the valuation of the property, which is used to determine the loan amount
Prepayment Fees: Extra charges for paying the loan early with one lender may apply if you decide to switch lenders
Lenders set varying interest rates for reverse mortgage loans. Typically, these rates are slightly higher than those of standard mortgage loans, such as home loans. The interest rates generally range from 9% to 12% p.a.
Here are some important aspects of reverse mortgages:
You can continue to live in the property while receiving the loan benefits
The loan term ranges from a minimum of 10 years, with the maximum term varying by bank
You have the flexibility to make lump sum, quarterly, annual, or monthly payments
The bank or home financing company re-evaluates the property every five years
Reverse mortgage rates differ based on the chosen loan type and the bank
Processing costs for reverse mortgages vary by bank
Here is a list of some of the banks that offer reverse mortgage schemes:
National Housing Bank (NHB)
Central Bank of India
Axis Bank
Indian Bank
IDBI Bank
Canara Bank
Punjab National Bank
Bank of Baroda
Disclaimer: The above-mentioned financial institutions are not partners of Bajaj Markets.
The maximum loan term typically extends to 20 years. This period allows for better financial planning, ensuring the loan is manageable.
Reverse mortgages cannot be granted for commercial properties, agricultural properties, or those with outstanding loans. These restrictions ensure that only residential properties are used to secure reverse mortgages.
The maximum amount depends on the borrower’s age, the property’s valuation, and the lending institution’s policies. For instance, Bajaj Finance allows a loan of up to ₹10.50 Crores against real estate, making it a viable option for those with high-value properties.
In India, reverse mortgage payments are not subject to income tax. However, the sale proceeds may attract capital gains tax if the property is sold to repay the loan, as the sale of the property is treated as a taxable event.
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