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Reverse Mortgage

Reverse Mortgage Loan

Last Updated 29th Jul 2021

  • A reverse mortgage loan is a loan facility that allows senior citizens to borrow funds by mortgaging their property.
  • The reverse mortgage calculation for the loan amount is based on factors such as the location and condition of the property.
  • Further, as per the reverse mortgage loan, the loan amount is disbursed to the borrower through monthly payouts, lump sum or as per the line of credit.
  • Various Banks and NBFCs like SBI, Axis Bank, HDFC, and Bank of Baroda, amongst others, provide the reverse mortgage facility to the eligible loan borrowers.
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What is Reverse Mortgage?

A reverse mortgage loan is a credit borrowing facility which is tailor-made for senior citizens who own a property. The loan is covered by the lender under the LAP segment. However, the borrower is not entitled to pay any monthly dues related to loans such as the EMI. In contrast to a regular mortgage loan that requires the borrowers to pay the regular EMIs, in case of a reverse mortgage, it is the lender who pays the property owner a fixed sum on a monthly basis, in a lump sum or a line of credit. This is because, as per the reverse mortgage loan, property owners can use the ownership of the property to borrow a fund against it. Thus, in this way, the reverse mortgage can help senior citizens earn a regular source of income. However, if the property owners plan to move out of the house or to sell it, then the loan borrowed against the property has to be paid back.

Features of Reverse Mortgage Loan

Some features of the reverse mortgage loan are listed in the table below:

Loan amount The reverse mortgage loan allows a maximum borrowing of up to Rs 1 crore in general.
Loan Tenure The loan tenure offered for the repayment of reverse mortgage loans can last up to a maximum of 20 years.
Processing fee The processing fee charged by the lender as per the reverse mortgage varies across different lenders. However, in general, a processing fee equivalent to half a month’s loan instalment is charged as the processing fee.
Margin A margin of up to 20% has to be maintained as per the reverse mortgage loan.
LTV ratio The LTV ratio offered as per the value of the mortgaged property ranges between 60% to 80% in most cases.

Reverse Mortgage Loan Eligibility Criteria

To avail a reverse mortgage loan, one needs to fulfil the following eligibility criteria. Though these may vary across different lenders, yet a general criterion is listed as follows:

  • The minimum age for reverse mortgage applicants is above 60.
  • To avail the reverse mortgage loan, one needs to own a property registered against his or her name.
  • The age of the mortgaged property must not be less than 20 years.
  • The owned property must be free of any previous encumbrances and a NOC must be obtained in the case one has previously availed a home loan against the concerned property.
  • A reverse mortgage loan can also be availed against the jointly-owned properties with the spouse. However, in this case, the age of the spouse must be at least 58 years.

Documents Required to Avail Reverse Mortgage Loan

Apart from meeting the eligibility criteria, one is also required to submit the following documents in order to avail the reverse mortgage loan:

  • Reverse mortgage loan application form.
  • Passport size photographs.
  • Identity proofs such as Aadhar card, PAN card, Passport, Driving License, Employee identity card or Voter ID card.
  • Address proofs such as utility bills like electricity, water, telephone or gas bill, Passport, Driving License or Aadhar card.
  • Last six months bank statements of all bank accounts held by the loan applicant.
  • Income documents such as salary slips for the last three months and copy of form 16 or ITR returns for the last two years.
  • Self-employed loan applicants are required to submit proof of business existence, business license, and Profit & Loss statement for the last three years.
  • Qualification certificate in case the applicant is a professional like CA, Doctor or Architecture.
  • In case of a previous loan on the property, a NOC and Loan A/C statement of the last one year is required.
  • Property papers such as approved plan copy, development agreement of the builder, and conveyance deed in case of the new property.
  • In case of ready to move in property, one is required to submit an occupancy certificate.
  • Property owners in Maharashtra are also required to submit the registered agreement for sale and share certificates.

Reverse Mortgage Loan Interest Rate

The reverse mortgage loan interest rate is different for every lender in India. The rates are marginally higher than the mortgage loan. Usually, the rates are 2.75-3% above the base rate.

Bank Name Reverse Mortgage Interest Rate
SBI8.05%
Axis Bank8.50%
IDBI8.25%
HDFC8.50%
PNB9.50%

How to take Reverse Mortgage Loan in India?

If a person wants to take a reverse mortgage loan then he/she must do the following:-

  • Compare the interest rate and other charges of the bank who provided reverse mortgage loan also known as Home Equity Conversion Mortgage (HECM loan).
  • Calculate reverse mortgage loan EMI using reverse mortgage loan EMI calculator.
  • Visit the selected lender.
  • Fill the application form.
  • Submit the required documents.
  • Loan amount will be sanctioned within few days.

Tax Benefits on Reverse Mortgage Loan

Reverse mortgage loan borrowers can avail tax benefits on the amount borrowed as per this facility. As per Section 10(43) of the Income-tax Act, the loan amount borrowed under the reverse mortgage is exempted from taxation. This means that the loan amount received by the borrower in any form whether in monthly instalment or lump sum is not treated as the income earned by the senior citizen, even when it is a capital gain.

Points to Remember about Reverse Mortgage

There are certain important factors about a reverse mortgage loan that all potential loan borrowers must keep in mind:

  • A reverse mortgage loan is a good option for senior citizens to earn a regular source of income.
  • The prep-payment of the reverse mortgage loan by the borrower does not involve any penalty or charges.
  • In case the prepayment of the reverse mortgage loan is done by transferring the loan to another lender, then the lender may charge a penalty of 2% on the balance takeover amount.
  • The loan can be repaid by the legal heir of the loan borrower in case of his or her death. To repay the loan, it is not compulsory for the heir to sell the property for repayment.
  • The legal heir can repay the loan within six months after the death of the borrower’s spouse, even when the actual borrower has died.

FAQs

How does a Reverse Mortgage Work When You Die?

In case a person who has taken a reverse mortgage and he/she dies then the heirs can inherit the house. However, they won’t receive the title to the property free because the property is subject to reverse mortgage.

What is a reverse mortgage loan?

A reverse mortgage loan is a loan facility for senior citizens who own a property. With the reverse mortgage loan, the senior citizens above the age of 60 can borrow a loan amount by keeping the property as mortgage. This facility can be a regular source of income for the senior citizen.

What can be the minimum Reverse Mortgage Loan Interest Rate?

The interest rate on reverse mortgage loans is generally 2.75%-3% higher than then the normal LAP rate. The current minimum interest rates of some of the top lenders are listed as follows:

SBI8.05%
Axis Bank8.50%
IDBI8.25%
HDFC8.50%
PNB9.50%

What is the disadvantage of a reverse mortgage?

The reverse mortgage loan does not require the loan borrower to pay regular EMIs. However, this leads to the accumulation of interests and other charges on the loan amount, which can create a financial burden at the time of loan repayment. In addition to that, mortgaging the property to obtain a loan, leads to a loss of asset, since the house is used as equity. Also, this equity has to be repaid by the borrower’s heir.

What can be a Reverse Mortgage Loan Example?

The best example for reverse mortgage loan can be- Mr A and Ms B are a retired couple, aged 65 and 61, who want to stay in their home, but need to boost their monthly income to pay living expenses. They also want to get some maintenance work at home. In such a case they can take a HEMC loan, they will get the ownership rights back when they repay the loan in full.

Is there any difference between Canara Bank Reverse Mortgage Loan and SBI Reverse Mortgage Loan?

No, there is no difference between the reverse mortgage scheme of Canara Bank Reverse Mortgage and SBI Reverse Mortgage loan. The only difference between the two will be eligibility criteria, interest rate and documents required.

What is Home Equity Conversion Mortgage (HECM)?

Home Equity Conversion Mortgage (HECM) is another name used for reverse mortgage loan. This scheme aims to give loans to senior citizens who are in need of funds by mortgaging their property.

How much money do you get from a reverse mortgage?

A reverse mortgage loan allows one to borrow a maximum amount of ₹ 1 Cr, in general. This however may vary across all lenders depending upon the borrower’s eligibility and terms and conditions.


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