Benefits of reverse mortgage for seniors
No matter how well the elderly have invested their money in old age, additional cash flow is more than welcome. Of the many senior-focused programs that exist in India, the reverse mortgage is less well known. Let us understand in detail this device and how seniors can benefit from it.
What is the reverse mortgage?
The Reverse Mortgage Program was introduced in 2007-08 by the Indian government to provide the elderly with additional income. Under this scheme, the elderly receive monthly periodic payments for the housing they own. They can mortgage their residential property as collateral with a bank or financial institution and get a loan against it. It is the “reverse” of a mortgage where the borrower pays the EMI monthly.
The maximum monthly payment for the elderly is capped at Rs 50,000 per year
Benefits of the reverse mortgage
The reverse mortgage serves as an additional source of income other than traditional investment options such as bank term deposits, national savings certificate, post office scheme, etc.
Seniors can use the income from a reverse mortgage for any purpose: household expenses, medical bills, travel, debt repayment, and any other daily need. There is no restriction on how this income is to be used.
Usually, income from owning a home can only be earned when it is rented or sold. The reverse mortgage allows seniors to earn money on their home while still living there. Even after the death of an elderly person who owns the house, his or her spouse can stay in the house. It’s a win-win situation.
The income received on the reverse mortgage loan is totally tax exempt. This means that you not only save on taxes, but can also invest that income in any financial instrument for additional returns. You earn more with the same income.
In a traditional mortgage, the borrower must pay prepayment charges for the loan. In the case of a reverse mortgage, the elderly can pay off the current loan at no cost.
- Home repair costs eligible for the deduction
Seniors can deduct the amount spent on home repairs or renovations when calculating their income.
Reverse Mortgage Eligibility
- A senior must be 60 years of age and over to qualify for the reverse mortgage facility.
- A senior can only claim a reverse mortgage against a home that is wholly owned and acquired by himself – it cannot be a gift or an inheritance.
- The property must be at least 20 years old and a permanent residence of the senior.
- Other reverse mortgage terms and conditions may vary from bank to bank.
The reverse mortgage loan is one of the ideal programs for seniors when they want to earn an income for their home.