Bangalore Real Estate Trends

This scheme helps senior citizens cash in on the equity of property

Areverse mortgage loan (RML) enables a senior citizen to get regular payments from a lender against the mortgage of his house.Senior citizen means a person above 60 years of age.Such a loan allows the borrower to continue to occupy his house as long as he lives.Unlike other loans,this one need not be repaid by the borrower.The concept is simple - a senior citizen who holds a house or property,but does not have a regular source of income,can mortgage his property with a bank and the bank pays the person a regular monthly amount.The person who 'reverse mortgages'his property can stay in the house for his lifetime and continue to receive the muchneeded regular payments. Effectively,the property now pays for the owner.So,you continue to stay at the same place and also get paid for it.The bank will have the right to sell off the property after the incumbent passes away or leaves the place,to recover the loan.It passes on any extra amount to the legal heirs.The whole idea is entirely opposite to the regular mortgage process where a person pays the bank for a mortgaged property.Hence,it is called reverse mortgage.This concept is particularly popular in the West.
RMLs can be extended by banks registered with the National Housing Bank.The loan amount is dependent on the value of the house as assessed by the lender,age of the borrower and prevalent interest rates.

The loan can be provided through monthly,quarterly,half-yearly or annual disbursements,as a lump sum,as a committed line of credit,or as a combination of the three.The maximum period of a loan (over which payments can be made to the reverse mortgage borrower) is 20 years.The lender on the other hand has to value the property periodically - at least once in five years - and the quantum of loan may be revised based on such revaluation at the discretion of the lender.

On the borrower's death or on the borrower leaving the house permanently,the loan is repaid along with accumulated interest,through sale of the property.The borrower or the heirs also has the option of prepaying the loan at any time during the loan tenure or later,without any prepayment levy.The borrower or his heirs can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.

Reverse mortgage is a way of getting the benefits of a home's equity while retaining ownership,and also without having to make any repayments.Many senior citizens will find reverse mortgage a solution to their financial needs after retirement.

A mortgage of property,in certain cases,is a transfer under the provisions of the Income Tax Act.Consequently,any gain arising on mortgage of a property may give rise to capital gains.However,in the context of a reverse mortgage,the intention is to secure a stream of cash flows against the mortgage of a house and not to alienate the property.

A new clause has been inserted to provide that any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government will not be regarded as a transfer.A borrower,under a reverse mortgage scheme,will however,be liable to income tax (in the nature of tax on capital gains) only at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.

_{Source: Time Property Dt: 6-8-10}