A steady stream of income after retirement is a luxury few enjoy.
Investing in retirement benefits like PPF and others can help you prepare for life after retirement, but they come with certain limitations.
For seniors dealing with money problems, the reverse mortgage scheme can be a good option to manage constant cash flow. The government has introduced the scheme to give people over 60 a supplementary income scheme.
Under the reverse mortgage arrangement, seniors can receive periodic monthly payments for all home ownership.
They can pledge the property as collateral to a bank or financial institution and take out a loan against it. The maximum monthly payment under the scheme is capped at Rs 50,000 per year.
Suitability
To be eligible for a loan under the reverse mortgage scheme offered by the banks, the applicant must be over 60 years of age.
The loan can only be against the mortgage of a wholly owned and acquired home that is not inherited or gifted.
The mortgaged property must be at least 20 years old. The scheme does not apply to seniors who live in rented accommodation.
How does a reverse mortgage work??
The bank will round off the quantum eligibility of your loan based on the condition of the home. Usually, the loan-to-value ratio under this arrangement is 60-80 percent.
This means that the property is worth Rs 1 crore; the loan amount can be between Rs 60-80 lakh. The maximum loan amount most banks offer is Rs 1 crore even if the value of the property is more.
The maximum loan period offered is 10-20 years from major banks.
The bank then pays out a loan amount to the borrower through periodic payments, allowing for a margin for interest charges and price fluctuations.
The periodic payments, also known as reverse EMI, are received by the borrower over the fixed term of the loan. With each monthly or quarterly payment, equity or individual interest in the home decreases.
Refund
The amount borrowed under the scheme becomes due after the last survivor dies. The heir of the borrowers is given the option to repay the loan by paying the amount owed along with the accrued interest.
However, if the trustee cannot repay the loan, the bank recovers the amount through the sale proceeds of the property.
The additional amount after sale of the property and settlement of the loan is paid to the legal heir of the borrower. If the sale proceeds are less than the accumulated principal plus interest, the bank bears the loss.