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REVERSE MORTGAGE - MORE CLARITY
C.H.Gopinatha Rao
For senior citizens: The reverse mortgage scheme aims to rovi!e an
a!!itiona" so#rce o$ income $or senior citizens %ho o%n se"$-ac&#ire! an!
se"$-occ#ie! ho#se roert'(
The National Housing Bank notified the Reverse Mortgage Scheme last year. In order to
clarify the tax issues arising out of the scheme, the inance Minister, in his recent !udget
s"eech, informed that the Income Tax #ct !e amended to "rovide follo$ing concessions%
&i' reverse mortgage $ould not amount to (transfer() and &ii' the stream of revenue
received !y the senior citi*en $ould not !e (income.( The res"onse for the reverse
mortgage scheme is not u" to ex"ectation "erha"s for $ant of clarity on tax treatment.
No$ that this as"ect has !een clarified, it is to !e seen $hether the scheme $ill !ecome
"o"ular.
The o!+ective of the scheme is to "rovide an additional source of income for senior
citi*ens of India $ho o$n self,ac-uired and self,occu"ied house "ro"erty.
In addition to the .ee$an Housing inance, the other !anks $ho offer this scheme
include State Bank of India, Bank of Baroda, #llaha!ad Bank, Indian Bank and #xis
Bank. The interest rate on the reverse mortgage currently varies from !ank to !ank,
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ho$ever, they are usually availa!le at a rate com"ara!le to the normal housing loan rates
of that !ank.
/ligi!ility criteria
The loan amount "aid is 01 "er cent of the value of "ro"erty. 2oan amount $ould
include interest till maturity. The loan instalments "aya!le to the !orro$er&s' $ould !e
as under for a loan amount of Rs.3 lakh &at interest rate of 31.456 ".a.'.The maximum
loan amount is ke"t at Rs.3 7rore &monthly "ayment Rs.88,5119, for 35 years' and
minimum Rs.: lakhs &monthly "ayment Rs.;459, for 35 years'.
The eligi!ility criteria as "rescri!ed !y the !anks are that the !orro$er should !e staying
at a house 9flat $hich is self,ac-uired and self,o$ned against $hich loan is !eing raised,
as his "ermanent "rimary residence. The age of the !orro$er should !e a!ove ;1 years
and the age of the s"ouse is more than 5< years. The !orro$ers may a""ly in single or
+ointly $ith s"ouse in case the s"ouse is alive.
The num!er of surviving s"ouses on the date of sanction of loan should not !e more than
one. Borro$ers $ill have to give an undertaking that they $ill not remarry during the
currency of the loan. The loan $ill !e foreclosed if !orro$ers choose to remarry.
#t the end of the reverse mortgage "eriod and the concerned o$ner survives the life
ex"ectancy "eriod, he or she has the o"tion of retaining the house after "aying the
"rinci"al $ith the accrued interest to the lender institution or the institution $ill sell the
"ro"erty to recover their dues. If the o$ner dies !efore the end the mortgage "eriod his
legal heirs can choose the o"tion to clear the dues and en+oy the "ro"erty. /lse, the
lender $ill sell the "ro"erty and any sur"lus left $ill !e handed over to the heirs of the
!orro$er. Title may !e in single name and loan availed +ointly $ith s"ouse.
Titleholder should make a=ill in favour of the other s"ouse.
The =ill should confirm that this is the last =ill and that it su"ersedes all earlier =ills, if
any. The !orro$er to undertake that no fresh =ill shall !e made during the currency of
the loan.
The "ro"erty should !e free from any encum!rances.
Residual life of the !uilding should !e at least 81 years in case of single !orro$er and 85
years in case of s"ouse !eing !elo$ ;1 years of age. 7ertificate from em"anelled
engineer9architect $ill !e re-uired to !e o!tained for this "ur"ose of the residual life of
the !uilding., in addition to valuation of "ro"erty.
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The RM2 shall !e secured !y $ay of e-uita!le mortgage of residential "ro"erty.
Revaluation
#fter the initial valuation to determine the loan amount, su!se-uent revaluations $ill !e
done at intervals of 5 years.
The Bank shall have the o"tion to revise the "eriodic9lum", sum amount every 5 years
along $ith revaluation. In the scenario of fall in "ro"erty "rices, the Bank may decide to
revise the amount at every stage of revision, to ensure that the 2oan to >alue ratio does
not exceed 01 "er cent at maturity. If the Borro$er does not acce"t the revised terms,
the Bank $ill effect no further "ayments.
Interest at the rate agreed !efore the revie$ $ill continue to accrue on the outstanding
amount of the loan. The accumulated "rinci"al and interest shall !ecome due and
"aya!le
If the monthly installment is reduced after five years due to some reason then the
!orro$er $ould !e "ut to hardshi".
The rules should !e modified such that the monthly installment should not !e reduced
and the "eriod of loan should continue as long as the !orro$er and s"ouse of the
!orro$er exist.
The lending institution may have some arrangement $ith the Insurance com"anies to
ensure that they get their dues $ithout loss.
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