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More clarity on reverse mortgage
The National Housing Bank notified the reverse mortgage scheme last year. In order to clarify the tax issues arising out it, the Finance Minister, in his recent budget speech, said that the Income Tax Act will be amended to provide following concessions:
(i) reverse mortgage will not amount to ‘transfer’; and (ii) the stream of revenue received by the senior citizen will not be ‘income.’ The response to the 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 who own a self-acquired and self-occupied house. The interest rate on reverse mortgage currently varies from bank to bank. However, it is usually available at a rate comparable to the normal housing loan rate of a bank.
The loan amount paid is 90 per cent of the value of property. The amount will include interest till maturity. The maximum loan amount is Rs.1 crore (monthly payment Rs. 22,500 for 15 years) and minimum Rs. 3 lakh (monthly payment of Rs.675 for 15 years).
Eligibility criteria
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. His age should be above 60 years and the age of his spouse, more than 58 years. The borrower 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. The title may be in a single name and loan availed jointly with spouse. The titleholder should make a will in favour of the spouse. The will should confirm that this is the last of its kind and that it supersedes all earlier wills, if any. The borrower has to given an undertaking that no fresh will shall be made during the currency of the loan. The property should be free from 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 the purpose of residual life of the building., in addition to valuation of property.
The RML shall be secured by way of equitable mortgage of residential property.
C.H. GOPINATHA RAO
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