For senior citizens pension or annuity receipts is one way of meeting their expenses in their retired life. There is another way which very few people know and which carries almost zero risk. It is called reverse mortgage.
What is a reverse mortgage? It means opposite of a mortgage. When you take a loan and keep an asset or property as security, it’s called a mortgage.
You pay installments, and in the end, the mortgaged asset becomes yours. But in reverse mortgage, it’s the opposite.You keep the ownership of your property with the bank or financial institution and, in return, receive money in installments.
The predetermined amount in a reverse mortgage can be received as a lump sum or in monthly installments. When the property is given under the reverse mortgage scheme, as long as the property owner is alive, they can stay in their home while the bank makes the payments. This money serves as a regular source of income for the elderly. Additionally, this amount is tax-free.
The benefits of the reverse mortgage scheme are available to Indian citizens aged 60 years or older. If the husband and wife are taking the loan together, the spouse should have a minimum age of 55 years. This way, one can spend their retirement life in their own home without depending on anyone for money.
Usually, this loan is available for a period of up to 20 years. The loan can be up to 75 to 90 percent of the property value. Reverse mortgage loans are usually carry a 2.5-3 percent higher interest than the prevailing interest rates.
However, the person taking a reverse mortgage does not have to pay this interest. When the reverse mortgage term ends and if their nominees wish to take possession of the house, then they have to pay this interest.
Here, an important question arises: Does the heir have a claim on the house given under the reverse mortgage scheme? Such a property cannot be acquired as an inheritance by children or legal heirs until the full amount of the mortgage is repaid.
If the loan repayment is not made, the bank can recover the debt by selling the property. Keep in mind an important thing: the loan is only granted when the house is in a better condition and the applicant has full ownership rights over it.