Reverse mortgage loan scheme turn out to be windfall to senior citizen who needs financial help. The scheme also known as ‘RML scheme’ is created from Maintenance of Parents and Senior Citizen Bill 2007, by way of social security measure initiated by the Government of India. The RML scheme is also popular in other developed countries like UK, USA, Australia, Canada, and New Zealand as an alternative social security measure.
Under RML scheme, senior citizen can borrow money from financial institutions for their natural financial requirement like family maintenance, repairs to the damaged dwelling unit, medical expenses etc., against security of their house. Primary Lending Institutions (PLI) viz. Scheduled Banks, Housing Finance Companies (HFC) and Insurance companies in India, lend to senior citizen under reverse mortgage loan scheme. The scheme facilitates the senior citizen to take loan at regular intervals which may be yearly, half yearly, quarterly or monthly or in lump sum as per loan agreement between the borrowers. The borrowers do not have to repay the loan during their life time. The legal heirs can repay the loan, failing which the bank will liquidate the loan by selling the house property. As per original scheme , the loan period on annuity disbursal was restricted to 20 years but subsequently government has removed the restriction of 20 years period on annuity disbursal to make it lifelong ( reported in Times of India Bangalore edition dated 22.10.2013).
Conditions for sanctioning RML
RML is granted to Senior Citizen of above 60 years. Under the scheme, both husband and wife can be made as joint borrowers subject to a condition that one of the joint borrowers should be of above 60 years of age and his/her spouse should be of less than 55 years of age. However, the condition of age and acceptance of age is prerogative of the lending institute/ Bank. The applicant must be the owner of a self-acquired, self-occupied residential property (house or flat) located in India with clear and transferable title, free from encumbrance. The benefit of joint borrowership is that both the borrowers during their life time and the survivor after the death of one of them, is entitled to stay in the house as an owner of the house till his/her life time. RML cannot be availed against security of Commercial properties. The house building which is to be mortgaged should have at least further life of 20 years. The value of the house and life of the building will be as per assessment made by the Valuer appointed by the bank/ financial institution.
The loan amount is decided by the lender bank or financial institution based on value of the property, age of the borrower(s) and prevailing interest rate. The valuation of the property would be done at least once in 5 years by the lender bank/PLI. The residual life of the property should be at least 20 years, which has to be certified by “Approved Valuer” or Engineer of Bank/PLI. The lender bank at its discretion may revise the loan amount, on the basis of revaluation of the property. As per National Housing Bank, the maximum loan to vlaue ratio considered as under.
As per the guidelines of National Housing bank, banks and Housing finance Institution lender may consider on the basis of age of the borrower as well as loan to value of the property which is as under .
|Age of the borrower||Maximum Loan to value|
|Between 60 and 70||60%|
|Between 70 and 80||70%|
|80 and above||75%|
Periodicity of the payment: Monthly, Quarterly, Half-yearly or Annual) as desired by the borrower.
Purpose of loan
The amount of loan released from time to time can be utilized by the borrowers for any of their natural financial needs like family maintenance, repairs to the damaged dwelling unit, for the payment of property Insurance premiums, medical expenses, and repayment of earlier loans or simply as a supplementary income to regular pension and so on. However the loan availed cannot be used for gambling or trading or for any commercial activities.
Security for the loan
Mortgage of house property against which the reverse mortgage loan is granted.
Repayment of Loan
Unlike other types of loans, in RML, the borrowers need not repay the loan amount and interest during their lifetime. At the same time they stay in the same house as owner of the house till their death. Loan will be adjusted from the sale proceeds of the mortgaged property after the death of borrowers or when the borrower(s) permanently moves out of the house property or if the borrower is staying out of property under reverse mortgage for a continuous period of one year.
Generally, any surplus money after adjustment of loan outstanding will be paid back to legal heirs. However incase the loan is foreclosed during the life time of borrower(s), out of sale proceeds of the property, the surplus amount will be returned back to the borrower(s).
Settlement of Loan by legal heirs
Borrower(s)/heir(s) can repay the loan at any point of time with accumulated interest and get the property released from the mortgage without resorting to sale of the property.
All payments made to senior citizen under Reverse Mortgage are exempt from Income Tax under section 10(43) of the Income Tax Act.However, periodic annuity payments are subject to tax under Section 17, 56 and 80CCC of the Income Tax Act and taxable in the hands of the annuity recipients.
Latest news (Times of India dated 22.10.2013): The government has removed the restriction of 20 years period on annuity disbursal to make it lifelong. In addition, the government has allowed insurance companies to directly participate in the scheme, which will significantly increase the amount of annuity that can be paid.