Reverse mortgage

Senior citizens can now rejoice, since, apart from the increase in the income tax exemption limit, the budget has also proposed to facilitate reverse mortgage for them. Let’s take a look at how this move will prove beneficial for the aged.

The Indian budget 2007-08 has spelled good news for senior citizens. Not only can they continue to live in their home but can also earn a regular income from their property now. The union budget has proposed a ‘Reverse Mortgage’ scheme for them.
The National Housing Bank (NHB) will introduce this unique offering in due course of time and will refinance the housing finance companies to offer this loan product to the elderly.

‘Reversal’ of fortunes for the elderly

Under a reverse mortgage, a home is used as collateral to earn income. In other words, by mortgaging property to a housing finance institution, you can earn a regular monthly income while continuing to remain the owner and occupy the house throughout your lifetime, without repayment or servicing of the loan. This is just the opposite of a regular mortgage, where the loan is availed of to purchase the asset which is then mortgaged for the entire tenure of the loan. In a reverse mortgage, the principal and interest on the loan are repaid when the home is sold.
Under this loan product, the lender will conduct a valuation of the house and on the basis of this, pays the owner an Equated Monthly Installment (EMI). The owners of the home can continue to occupy the house until the time they pass away, after which, the possession of the home lies with the lender.

Elders can unlock the value of their home:

This scheme is ideally suited to homeowners who do not enjoy a constant stream of income and who are not eligible for other loans such as a personal loan etc. You can pull needed cash by mortgaging your home, without incurring any additional expenses. Further, you can continue to live in the house during your lifetime and lenders cannot force you to sell the property to pay back the loan since a reverse mortgage guarantees that the homeowner can stay on the property for as long as he or she is living, even if the loan outstanding and interest on it grow to exceed the value of the property.

Creation of mortgage guarantees companies:

It is also proposed by the Government of India, the creation of Mortgage Guarantee Companies who will guarantee the loan given by way of this scheme. This will provide greater comfort to lending institutions. The regulations for forming of such guarantors will be put in place.

With inflation and rising prices becoming a cause for concern particularly during retirement years, reverse mortgage comes across as the silver lining for senior citizens in our country.