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Importance Of Reverse Mortgage Loan For Senior Citizens

Given the limited finances, if you are a senior citizen and face financial challenges, then a reverse mortgage strategy is here to raise your monthly revenue. Back in 2007, the policy was introduced by the government and is ideally tailored to elderly homeowners who do not have a fixed monthly income and are under burden because of poor returns from fixed deposits and other debt regimes. Nevertheless, the scheme never achieved traction and was therefore not marketed by banks. But in the present situation, since the interest rates are poor, now might be a reasonable time to try the reverse mortgage.

For a senior citizen, a loan provided by banks for a cumulative term of 10-12 years is a reverse mortgage scheme. But what separates reverse mortgage from other loans is that not the borrower, but the legitimate heir, pays the loan sum. The banks assess the loan amount after assessing the house and its position, and even if the property is worth much more, the maximum loan amount offered is Rs 1 crore. For reimbursement, the banks either auction the estate after the legitimate heir’s death of the senior citizen or the nominee repays within the time limit.

There are two payout alternatives: regular mortgage strictly from the lender and annuity-based loan where a lump-sum amount is penalized by the lender but offered to an insurance provider that calculates annuity in return and then pays monthly, quarterly, half-yearly or annually. As it is not classified as income earned, the loan balance earned as a monthly instalment or lump-sum is exempted from tax. The scheme remains widely unpopular in Indian society, where the family house is associated with familial attachment and is usually handed down to the children or legal heirs. But for the banks, the lender has to wait for the borrower to expire to reclaim the balance if a senior citizen accepts a reverse mortgage loan for 10 years and continues to live for 40 years.   

Raman Sonu
Raman Sonu
Raman is an Author, writer and blogger. He has knowledge and understanding of finance, stock, and market research. He has done Bcom in Finance. Please contact me at raman.sonu2020@gmail.com for any feedback or concern.
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