The expectancy of life in India has been gradually increasing in the last few years. In addition, the medical expenses are also increasing. The days are gone when the old age people used to live with their children, depending on them for their needs now the world has changed. So, for those who want to live independent even after retirement, government of India has launched a very beneficial scheme known as Reverse Mortgage, introduced by the Union Government in 2007, giving them a life of Self Respect. Now the old age people don’t have to have a fear of not having money to spend their old age lives. This scheme is helpful for all those people who have not made any corpus during their earning age. Even with one house they can live their life happily even in living in it.
Let’s understand what Reverse Mortgage is…
In simple words, a reverse mortgage is just the opposite of a traditional home loan. Under this scheme, a senior citizen receives a regular income from a bank or a financial institution (lender) against his residential property. Individual who is mortgaging his house can continue to stay in the same house and also receive a regular stream of income on it. The payment is generally for a fixed tenure of 15-20 years, after which the borrower or legal heirs (on death) can acquire the house by either repaying the loan or the lender settles the amount by selling the house. Any excess in the process is paid back to borrower or legal heirs as the case may be.
General guidelines for Reverse Mortgage
The Reserve Bank of India has provided the following guidelines for reverse mortgage.
- Maximum loan: Up to 60% of the value of the residential property.
- Minimum tenure:10 years
- Maximum tenure: 15 years. Some banks are now also offering a maximum tenure of 20 years.
- Payment Options:Monthly, quarterly, annual or lump sum.
- Once every 5 years lender has to do revaluation of the property.
So, with the help of reverse mortgage Senior citizen can live there life happily without depending on their children’s and taking care of their life themselves without losing their house.Reverse Mortgage is a relatively new concept in India. It would take some time for a change in mind set of individuals to accept it. As a financial tool, Reverse Mortgage is ideal to augment a senior citizen’s income in his years ahead. Despite all its shortcomings in India, it could make good the shortfall in one’s pension or income to live a quality life ahead.
Though it’s new in our country but many will be benefited by it. Now individuals who retire with insufficient retirement corpus have a tool to make what they own to what they owe. So, in my opinion reverse mortgage a tool which give you the best for your home.
This blog is written by Kratika Sharma student of Post Graduate Diploma in Financial Planning(PGDFP), International College of Financial Planning(ICFP)
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