The ownership of a house is a dream for every young Indian. When a middle-class Indian finishes his education, his first priority is to get a job and then follows it up with buying a vehicle, gets married and buys a house. A major part of his life is spent on repaying the loan taken for purchase of the house. This results in lower savings and smaller retirement corpus in investments but with a real estate of a higher value which cannot be unlocked and used for better retirement life. Reserve mortgage is, in such a case, an excellent alternative to unlock your real estate without parting with it. Reserve mortgage allows senior citizens to avail themselves of funds by mortgaging their residential property.
The scheme is similar to a housing loan except that in a home loan the borrower pays a fixed EMI to the lending institution, while in a reverse mortgage the lender pays the borrower a fixed sum of money on a monthly or quarterly basis, the total payment being equal to the value of the property and the interest on the loaned amount. After the death of the borrower and the borrower’s spouse, the housing company sells the property to recover the amount paid out along with interest at a rate similar to interest on housing loans.
The salient features of a reverse mortgage are:
1. The contract converts the capital value of a home into an annuity over the homeowner’s lifetime.
2. The loan is not an income and is therefore tax-free.
3. The amount loaned would depend on the estimated value of the property minus the interest cost, its condition and life.
4. The legal heirs have the option to re-possess the property after the demise of both the borrower and the spouse on clearance of all debts.
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