Term reverse mortgage scheme under Indian Tax

What is reverse mortgage scheme under Indian Tax


This post explains about reverse mortgage scheme Indian Tax.  

Reverse mortgage Scheme

Getting into old age without proper financial support can be a very bad experience. The rising cost of living, healthcare, other amenities compound the problem significantly. Senior Citizens need a regular cash flow stream for supplementing pension/other income and addressing their financial needs. Secular increase in residential house prices has created considerable “home equity “wealth. For most Senior Citizens, the house is the largest component of their wealth. Reverse mortgage in India is slowly but surely becoming an acceptable means for the elderly to lead a dignified life through income from the home that they once built while they were earning. The reverse mortgage scheme offered by some of the leading banks in India could bring the required answers to the suffering senior citizens. Most of the people in the senior age groups, either by inheritance or by virtue of building assets have properties in names, but they were not able to convert it into instant and regular income stream due to its illiquid nature. The Union Budget 2007-2008 had a great proposal which introduced the ‘Reverse Mortgage' scheme. The concept is simple, a senior citizen who holds a house or property, but lacks a regular source of income can put mortgage his property with a bank or housing finance company (HFC) and the bank or HFC pays the person a regular payment. The good thing is that the person who ‘reverse mortgages' his property can stay in the house for his life and continue to receive the much needed regular payments. So, effectively the property now pays for the owner. So, effectively you continue to stay at the same place and also get paid for it. So, Reverse mortgage is a type of mortgage in which owner of the home can borrow the money against his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold.

The draft guidelines of reverse mortgage in India prepared by RBI have the following salient features:

ü  Any house owner over 60 years of age is eligible for a reverse mortgage.

ü  The maximum loan is up to 60% of the value of residential property.

ü  The maximum period of property mortgage is 15 years with a bank or HFC.

ü  The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.

ü  The revaluation of the property has to be undertaken by the Bank or HFC once every 5 years.

ü  The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.

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