India has taken slow but steady steps towards financially strengthening retired populace. Currently, there are 3 primary modules of the Indian pension scheme, the Civil Servants Pension, the mandatory pension scheme run by the Employees’ Provident Fund Organisation of India, and the National Social Assistance Program initiated for the employees of the unorganised sector. However, despite the massive revamp of pension structure for the benefit of the retirees, it often falls behind the rising cost of living and healthcare system that senior citizens require frequently.
To mitigate the financial strain burdening the pensioners across the nation, the Government of India introduced the reverse mortgage loan (RML) in India in 2007. It is a scheme where retired personnel (above 60 years of age) can mortgage their residential property to a financial institution to acquire a regular source of finance. Lenders usually disburse a substantial amount (depending on the property’s market value) in monthly, quarterly, or yearly basis to the borrower, helping them overcome any financial requirements with ease.
Reverse mortgage loan is a preferred tool for many retired individuals across the nation. It acts as a loan for pensioners, requiring minimum paperwork and additional fees, similar to the charges of a loan against property or any other mortgage loan. There are also several other reasons why a reverse mortgage can prove helpful for pensioners, let’s take a look at some of them.
Substantial Disbursed Amount –
The total amount of money a financial institution can pay to a borrower as a pensioner loan can reach anything between 60% to 90% of the prevailing market value of the mortgaged residential property. It is one of the primary reasons why a reverse mortgage may prove helpful for pensioners; they can grow their home’s equity over their span of career and earn annuity after they retire.
Flexible Reverse EMI options –
Reverse mortgage allows a borrower to settle a payment option for monthly, quarterly, or yearly basis, according to the applicant’s preference. Borrowers can get a maximum payment of up to Rs. 50,000 every month.
Borrowers can also avail a one-time emergency payment of 50% of the eligible amount (or Rs. 15,00,000, whichever is smaller) during the loan tenor to pay for any medical emergency for themselves, their spouse, or any dependent. This loan for pensioners offers additional flexibility, similar to mortgage loans like loan against property, making it an attractive choice for many retirees.
These schemes are offered by various financial institutions, including NBFCs like Bajaj Finserv. Moreover, they provide several borrower-friendly features and benefits, like pre-approved offers that make availing such loans quick and hassle-free. These offers are applicable to multiple financial products including secured credits like home loans, unsecured advances like personal loans, business loans, etc. You can check your pre-approved offer by sharing only your name and phone number.
Right of the Property –
Borrowers hold the right to live in the property even after mortgaging the same for a reverse mortgage. It offers them more convenience as they don’t have to look for an alternate residential complex after availing this scheme. The Reserve Bank of India also allows an individual (or their spouse) to continue to live in their mortgaged house even after expiration of the loan tenor. The settlement is only allowed if the borrower passes away.
Minimise Risk of Foreclosure –
Non-borrowing spouse facing foreclosure for reverse mortgage is a rare occurrence. Most financial institutions offer appropriate terms that allow both members to enjoy similar benefits.
Moreover, most lenders offering reverse mortgage also offer this facility to avail it for both spouses. In this case, the minimum age requirement (for the spouse) will reduce to 55 years, and the property will not be auctioned until both members pass away.
Tax Benefits –
The Reserve Bank of India categorises reverse mortgage as a welfare measure rather than a conventional credit facility. This allows its funds to be considered as a loan rather than an income, and borrowers can enjoy tax exemptions on the sum as per Section 10 (43) of the Income Tax Act of 1961. Both periodic or lump sum payments are exempted from all taxes, and there will be no liabilities until the property is auctioned for sale. This feature is similar to availing tax benefits on loan against property and allows the borrower to save a significant amount from their annuity sum.
Reverse mortgage can work as an ideal pensioners loan, offering them a regular source of income and emergency funds for unforeseen events.