What is meaning of reverse mortgage in India, How reverse mortgage loans work in India
Reverse Mortgage was introduced in India by the National Housing Bank in May 2007. The meaning of reverse mortgage in India is when a Bank takes on as security (mortgage) a property which belongs to a Senior Citizen and which has a clear title without any liability, and pays a monthly income based on the value of the property to the owner of the property or his spouse. The purpose of Reverse Mortgage is to help retired people who are senior citizens and who own a residential property - a house or an apartment flat, but do not have enough income, to support them in their old age with a regular monthly income. The other advantages of reverse mortgage in India are that the Bank who gives the loan cannot take any action to evict the owner who took the loan from his house during his lifetime. Also the documents required for getting reverse mortgage loan in India are straight forward and is not complicated.
The Reverse Mortgage Scheme in India now is not very popular because people are afraid of of losing their property during their lifetime. The other main reason of not taking reverse mortgage in India is because of the doubt that a Reverse Mortgaged property cannot be rented out in case they wanted to go and live with one of their children. Whatever the shortcomings of Reverse Mortgage Schemes in India, owners of residential property can live with the confidence that in their old age, they can rely on their own house to provide adequate income in their dying years when there may be huge hospital bills.
A reverse mortgage works like a usual mortgage, but instead of you paying the bank regular monthly EMI, the bank pays you monthly or quarterly as the case may be. The interest rate for reverse mortgage in India is calculated on the basis total money received by the house owner. Under the reverse mortgage scheme rules in India the recipient of the reverse mortgage loan only pays interest on the money he received and from the date he received the money.
As per the Reserve Bank of India rules for Reverse Mortgage loans in India, the maximum loan amount will be 60% of the value of the residential property. The minimum and maximum tenure of the reverse mortgage will be 10 years and 20 years respectively. The property can be revalued once every 5 years and the maximum loan amount can be adjusted. Only house owners above the age of 60 years are eligible and if the spouses above the age of 58 years only can be made a co-applicant.
Money received under the Reverse Mortgage Scheme in India is not taxable, since the money is a loan and not an income. The reverse mortgage loan interest rates in India can be either fixed or floating and will depend on the prevailing market interest rates. If the borrower continues to live after the tenure of the Reverse Mortgage loan period, he can still continue to live in the house, but no payments will be made under the reverse mortgage scheme. Settlement of the loan only becomes due when the borrower dies. If Reverse Mortgage is in the joint names of husband and wife, then the loan amount becomes due only after the death of both, if one dies, the other can continue to live in the house till death.
Repayment of Reverse Mortgage loan in India
The total loan dues of the reverse mortgage becomes due to the bank when the last surviving borrower dies. The bank has to then give the first option to the legal heir or heirs to settle the full loan and take possession of the house. If the legal heirs cannot settle the loan, the bank has the option to settle the loan by selling the property. If the sale proceeds are more than the loan amount, then the bank has to give it to the legal heirs. If the sale proceeds are not enough to cover the loan amount then the bank has to suffer the loss, since under the law as at present, the bank has no recourse to recover it from the legal heirs.
Reverse Mortgage in Kerala India
In Kerala, the Reverse Mortgage scheme is more successful than in the rest of India. Almost all branches of nationalised and private banks have Reverse Mortgage Schemes, even some of the cooperative banks have now started to provide reverse mortgage schemes because of the growing demand in Kerala