Concept of Reverse Mortgage

Concept of reverse mortgage is introduced recently in India, under the reverse mortgage scheme senior citizen who holds the house property, but lacks regular source of income can put his property under mortgage with bank

Conceptually, Reverse mortgage seeks to monetize the house and an asset. He Scheme involves the senior citizen borrower mortgaging the house property to a bank, who then makes periodic payments to the borrower during the latter’s lifetime. The senior citizen borrower I not required to service the loan during his lifetime and therefore do not make monthly repayments of principal and interest to the bank. On the borrowers’ death or on the borrower leaving the house property permanently the loan is repaid along with interest thereon. Through sale of the house property. The borrower/heir can also repay or prepay the loan with accumulated interest and have the mortgage released without restoring to sale of the property loan with accumulated interest and have the mortgage released without restoring to sale of the property.

How it is different from simple mortgage

The whole idea is entirely opposite to the regular mortgage process where a person pays EMIs to the bank for a mortgaged property.

In case of regular mortage, the borrower mortgages his existing property and uses the amount to finance the property or for any other purpose and is required to repay the loan amount in the form of Equated monthly installments (EMI) the EMI would include the loan amount and the accumulated interest. The Property mortgaged serve a collateral security for the loan borrowed

Scheme in nutshell

 Reverse mortgage scheme inter-alia involves the following.

Senior citizen borrower mortgages the house property to a lender.

The lender makes the periodic/lump sum payments to the borrower during the latter’s life time.

The borrower is not bound to service the loan during his life time and therefore, does not make monthly repayments of principal and interest to the lender.

On the borrower’s death or on the borrower leaving the house property permanently, the loan is repaid along with the interest, so sale of the house property

The borrower/heir(s) can also repay or prepay he loan with accumulate interest and have the mortgage released without restoring to ale of the property

Transaction of reverse mortgage the Finance Act, 2008 does snot included the transfer of capital asset in a to give relief to the senior citizens who mortgaged property for their survival.

Further, Finance Act 2008 also clarifies that the amount received as loan shall not be treated an income of the senior citizen .Although loan is a capital receipt but to clarify the position of the senior citizen and promote the scheme of reverse mortage,it has been provided that such income shall be exempt from tax in the hands of the senior citizen.

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