Reverse Mortgage Scheme: An additional source of income for senior citizens; here's details

By Team Newsable | First Published Sep 5, 2022, 12:20 PM IST

The reverse mortgage scheme may be viable for managing consistent cash flow for senior citizens experiencing cash crunches. The government established the scheme to provide a supplement income scheme to people over 60. The reverse mortgage scheme allows senior citizens to receive monthly payments against any owned residential property.

After retirement having a steady income is a luxury that few people have. Investment in retirement benefits, such as PPF and others schemes, can help you prepare for life after retirement, but there are some limitations.

For senior citizens experiencing cash crunches, the reverse mortgage scheme may be viable for managing consistent cash flow. The government created the scheme to provide a supplement income scheme to people over 60.

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Under the reverse mortgage scheme, senior citizens can receive monthly payments against any owned residential property.

They can use the property as collateral to obtain a loan from a bank or financial institution. The scheme's maximum monthly payment is capped at Rs 50,000 per year.

Here's how the scheme work,
The bank will determine your loan quantum eligibility based on the house's condition. Typically, the loan-to-value ratio under this scheme is 60-80 per cent.

This means the property is worth one crore, and the loan amount could range between 60 and 80 lakh. Even if the property is worth more, most banks will only lend up to one crore.

Major banks offer loan terms ranging from 10 to 20 years. After accounting for interest costs and price fluctuations, the bank disburses a loan amount to the borrower in periodic payments.

The borrower receives periodic payments, reverse EMI, over the fixed loan term. The equity or the individual's interest in the house decreases with each monthly or quarterly payment.

Know about the eligibility,
To be eligible for a loan under the banks' reverse mortgage scheme, the applicant must be over 60. The loan can only be used to pay off the mortgage on a fully owned, self-acquired home that was not inherited or gifted. The mortgaged property must be at least 20 years old. The scheme is not available to senior citizens who live in rented housing.

Know about the repayment,
After the last survivor dies, the loan amount becomes due under the scheme. The borrowers' heirs are given the option of repaying the loan by paying the principal amount plus interest.

The bank recovers the amount by selling the property if the nominee cannot repay the loan.

The excess amount after selling the property and repaying the loan is paid to the borrower's legal heir. The bank bears the loss if the sale proceeds are less than the accrued principal plus interest amount.

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