How Can Senior Citizens Benefit from a Reverse Mortgage During Coronavirus?

The Government of India has taken several remarkable initiatives towards the betterment of citizens and their socio-economic standing. Massive advancements in healthcare and treatment have increased the average life expectancy tremendously. A study published shows that the average life expectancy of Indian citizens is currently 69.27 years.

However, a higher life expectancy brought several unique issues upfront. The financial condition of retirees was most concerning; despite having several programs in place, the rising cost of healthcare threatened to drain the life’s savings of individuals, especially during unprecedented economic contraction like in the present. Fortunately, financial schemes like reverse mortgage loans are likely to back India’s asset-rich elderly population.

Reverse mortgage schemes were introduced in India in 2007, as a means to provide an alternate source of income to pensioners. It allows an individual to mortgage their residential property and avail a portion of the house’s equity as cash.

Reverse mortgage loan (RML) can thus be one of the preferred modes of financing for many senior citizens across the nation, especially during the current scenario. These financial products are considered as a convenient and affordable option because of their minimum rates, which are similar to the charges of a loan against property or other forms of mortgage loans.

How can reverse mortgaging an asset prove beneficial?

Several reasons explain why reverse mortgage schemes can be the pensioners’ and senior citizens’ preference across India. Here’s how they can benefit from such policies –

• They can gain access to a substantial amount –

Reputed financial institutions can offer as much as 90% of a mortgaged property’s value under these schemes. It can provide an immense financial boost to pensioners, which can prove helpful during current times.

A significant number of India’s population owns residential properties. The equity which is collected over a lifetime can be utilised to earn a much-needed annuity post-retirement.

Moreover, the funds offered with a reverse mortgage loan come without any end-use restrictions. Borrowers can utilise the amount for any suitable purpose, whether to maintain their lifestyle or to pay for unforeseen expenses like medical emergencies.

• Borrowers hold the right to stay in the property –

According to the guidelines introduced by the Reserve Bank of India, borrowers availing a reverse mortgage loan in India hold the right to stay and use the property even after the end of loan terms. Financial institutions can only sell the property (for the disbursed amount’s recovery) after the borrower and his or her spouse pass away. Borrowers can also avail an RML as a joint loan, in which case the minimum age criteria is relaxed to some extent.

It is also classified as a non-recourse advance, meaning borrowers are not obligated to repay the disbursed amount. The Reserve Bank of India also enforced provisions for the next of kin to claim the property by repaying the outstanding amount.

Together, these provisions eliminate any risk of untimely property auction, allowing pensioners to reside in their homes without worrying about repayment.

• Borrowers are eligible for tax exemption –

Borrowers availing a reverse mortgage loan are eligible for tax exemptions under Section 10(43) of Income Tax Act of 1961. As the funds collected through this mortgage scheme are considered as welfare instead of an ordinary loan, borrowers are exempted from the taxes as applicable to similar policies. The exemptions remain the same whether someone opts for monthly, quarterly, half-yearly, annual, or lump sum pay-out.

However, this mortgage plan is available only for pensioners. Prospective borrowers with a regular income can opt for secured advances like a loan against property. These loans offer a substantial sum with an extended repayment tenor and attractive loan against property interest rate, which helps keep the overall cost to a minimum.

Borrowers can also enjoy several other benefits, like quick disbursal, balance transfer facility, online account management, and tax benefits on a loan against property.

Reverse mortgage benefits and provides much needed financial relief to senior citizens of India, providing the necessary monetary backing to provide for essentials during present times. Individuals who need additional financial boost can consider financial products like loan against property, as these can help bridge any financial shortcoming one might face along with being affordable.