No matter how well senior citizens have invested their money in the old age, additional cash flow is more than welcome. Amongst the many senior citizen driven schemes that exist in India, reverse mortgage is a lesser-known one. Let’s understand this scheme in detail and how senior citizens can benefit from it.
What is Reverse Mortgage?
The Reverse mortgage scheme was introduced in 2007-08 by the Indian government to enable senior citizens get supplement income. Under this scheme, senior citizens receive periodic payments every month against the home owned by them. They can mortgage their owned residential property as collateral with a bank or a financial institution and get a loan against it. This is the ‘reverse’ of a home loan where the borrower pays monthly EMI.
The maximum monthly payment to the senior citizen is capped at Rs 50,000 in a year
Benefits of Reverse Mortgage
- New Source of Income
Reverse mortgage serves as a supplementary income source other than traditional investment options such as bank fixed deposits, national savings certificate, post office scheme, etc.
- All-Purpose Income
Senior citizens can use reverse mortgage income for any purpose – household expenses, medical bills, travel, debt payment and any daily need. There is no restriction on how this income should be used.
- Better Use of Property
Usually, income from owned home property can be earned only when it is rented or sold off. Reverse mortgage allows senior citizens to earn money on it their home while continuing to reside in it. Even after the death of a senior citizen who owns the house, his or her spouse can stay in the house. It is a win-win situation.
- Tax-Free Income
The income received on reverse mortgage is totally tax-free. This means that you not only save on taxes but can also invest this income in any financial instrument to get further returns. You are earning more from the same income.
- Zero Pre-Payment Charges
In a traditional home loan, the borrower has to pay charges for premature repayment of the loan. In the case of reverse mortgage, senior citizens can repay the outstanding loan without any charges.
- Home Repair Expenses Eligible for Deduction
Senior citizens can claim the amount spent on home repairs or renovation as a deduction in the computation of income.
Eligibility for Reverse Mortgage
- A senior citizen must be aged 60 years and above to avail reverse mortgage facility.
- A senior citizen can avail reverse mortgage only against a fully-owned and self-acquired home – it can’t be a gift or inheritance.
- The property must be at least 20 years old and a permanent residence of the senior citizen.
- The other terms and conditions of reverse mortgage may vary from one bank to another.
Reverse mortgage is one of the ideal schemes for senior citizens when they want to earn income for their owned home.