How Reverse Mortgage works in India

If you are a senior homeowner looking for monthly streams of income or a lump sum cash amount to pay off medical bills, make big purchases or even renovate your home, a reverse mortgage is the one you should go for. It's a financing option that can help you borrow against the home equity thereby allowing you to retain ownership of your home even during the period for which you receive the loan advances.

• You should be aged 60 and above to apply for a reverse mortgage. However, the National Housing Bank allows married people to go for it even if one of them is below 60.
• You should own and occupy your property as the primary residence.
• You should have a single family home (not more than 17-20 years) absolutely free of any debt and having clear title. So, if you have any debt on your home, pay it off first and then apply for the reverse loan.
• The best thing about a reverse mortgage is that, there aren't any income or credit qualifications for qualifying for a reverse mortgage.

If you're someone aged 60, you can borrow up to 30% of the property value. But if you are above 60 years, the lender can offer a loan worth 60% of the property value. The amount you can borrow depends upon:

1. Your property value.
2. The period for receiving loan advances.
3. The rate at which you may get the loan.

You can even get the loan costs financed along with your mortgage.

You can avail the cash amount through various schemes:
• Tenure: By this option, you can get monthly loan payments as long as you live in the property and occupy it as your primary residence.
• Creditline: This option will allow you to avail loan advances at times through a line of credit and you can continue to take out cash until and unless the credit line is exhausted.
• Modified tenure: It's a combination of line of credit and monthly payments providing you with cash till you occupy your primary residence.
• Term: You get equal monthly installments (into which the loan amount is divided) for a fixed time period.
• Modified term: It's a combination of line of credit and monthly payments that you'll receive for a fixed time period as decided upon by you and the lender.

Whichever scheme you follow, the maximum time period during which you can receive loan proceeds is 15 years, after which the borrower can continue staying in the property.

You need not even pay off the loan until and unless you sell your home or abandon it. And, after your death, the property will be handed over to the financial institution who offered the loan.

Reverse mortgage has been introduced in India by Dewan Housing. The other institutions you can approach are the National Housing Bank and the Punjab National Bank. Those who are yet to offer such loans are the Corporation Bank, Union Bank of India and ICICI Bank.

The benefit of taking out a reverse mortgage is that, you need not pay tax on the amount received at regular intervals – it's the loan amount that you're borrowing and not a source of income. Another advantage of such a loan is that, you don't have to hand over the liability of the mortgage to your heirs – when you are no more or if you fail to pay it off, the property will be taken over by the lender. Or else, the heirs may pay off the loan and then take over the ownership rights.