Property Plus
Coimbatore
More clarity on reverse mortgage
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The recent budget has clarified the tax aspect on the scheme, writes C.H.Gopinatha Rao
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— Photo: Sushanta Patronobish
For senior citizens: The reverse mortgage scheme aims to provide an additional source of income for senior citizens who own self-acquired and self-occupied house property.
The National Housing Bank notified the Reverse Mortgage Scheme last year. In order to clarify the tax issues arising out of the scheme, the Finance Minister, in his recent budget speech, informed that the Income Tax Act be amended to provide following concessions:
(i) reverse mortgage would not amount to "transfer"; and (ii) the stream of revenue received by the senior citizen would not be "income." The response for the reverse mortgage scheme is not up to expectation perhaps for want of clarity on tax treatment. Now that this aspect has been clarified, it is to be seen whether the scheme will become popular.
The objective of the scheme is to provide an additional source of income for senior citizens of India who own self-acquired and self-occupied house property.
In addition to the Deewan Housing Finance, the other banks who offer this scheme include State Bank of India, Bank of Baroda, Allahabad Bank, Indian Bank and Axis Bank. The interest rate on the reverse mortgage currently varies from bank to bank, however, they are usually available at a rate comparable to the normal housing loan rates of that bank.
Eligibility criteria
The loan amount paid is 90 per cent of the value of property. Loan amount would include interest till maturity. The loan instalments payable to the borrower(s) would be as under for a loan amount of Rs.1 lakh (at interest rate of 10.75% p.a.).The maximum loan amount is kept at Rs.1 Crore (monthly payment Rs.22,500/- for 15 years) and minimum Rs.3 lakhs (monthly payment Rs.675/- for 15 years).
The eligibility criteria as prescribed by the banks are that the borrower should be staying at a house /flat which is self-acquired and self-owned against which loan is being raised, as his permanent primary residence. The age of the borrower should be above 60 years and the age of the spouse is more than 58 years. The borrowers may apply in single or jointly with spouse in case the spouse is alive.
The number of surviving spouses on the date of sanction of loan should not be more than one. Borrowers will have to give an undertaking that they will not remarry during the currency of the loan. The loan will be foreclosed if borrowers choose to remarry.
At the end of the reverse mortgage period and the concerned owner survives the life expectancy period, he or she has the option of retaining the house after paying the principal with the accrued interest to the lender institution or the institution will sell the property to recover their dues. If the owner dies before the end the mortgage period his legal heirs can choose the option to clear the dues and enjoy the property. Else, the lender will sell the property and any surplus left will be handed over to the heirs of the borrower. Title may be in single name and loan availed jointly with spouse.
Titleholder should make aWill in favour of the other spouse.
The Will should confirm that this is the last Will and that it supersedes all earlier Wills, if any. The borrower to undertake that no fresh Will shall be made during the currency of the loan.
The property should be free from any encumbrances.
Residual life of the building should be at least 20 years in case of single borrower and 25 years in case of spouse being below 60 years of age. Certificate from empanelled engineer/architect will be required to be obtained for this purpose of the residual life of the building., in addition to valuation of property.
The RML shall be secured by way of equitable mortgage of residential property.
Revaluation
After the initial valuation to determine the loan amount, subsequent revaluations will be done at intervals of 5 years.
The Bank shall have the option to revise the periodic/lump-sum amount every 5 years along with revaluation. In the scenario of fall in property prices, the Bank may decide to revise the amount at every stage of revision, to ensure that the Loan to Value ratio does not exceed 90 per cent at maturity. If the Borrower does not accept the revised terms, the Bank will effect no further payments.
Interest at the rate agreed before the review will continue to accrue on the outstanding amount of the loan. The accumulated principal and interest shall become due and payable
If the monthly installment is reduced after five years due to some reason then the borrower would be put to hardship.
The rules should be modified such that the monthly installment should not be reduced and the period of loan should continue as long as the borrower and spouse of the borrower exist.
The lending institution may have some arrangement with the Insurance companies to ensure that they get their dues without loss.
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Property Plus
Coimbatore
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