How seniors can get a steady flow of money using this program. Details
A steady stream of income after retirement is a luxury enjoyed by only a few.
Investing in retirement benefits like PPF and others can help prepare you for life after retirement, but they have certain limitations.
For seniors facing cash flow issues, the reverse mortgage system could be a good option to manage steady cash flow. The government introduced the scheme to provide a supplementary income scheme for people over 60 years of age.
Under the reverse mortgage program, seniors can receive periodic monthly payments on any residential property they own.
They can mortgage the property as collateral with a bank or financial institution and obtain a loan in return. The maximum monthly payment under the scheme is capped at Rs 50,000 per year.
To qualify for a loan under the reverse mortgage offered by banks, the applicant must be over 60 years of age.
The loan can only be granted on the mortgage of a fully owned and self-acquired home that is neither inherited nor donated.
The mortgaged property must be at least 20 years old. The scheme is not accessible to seniors living in rental accommodation.
How the Reverse Mortgage Works?
The bank will finalize your quantum eligibility for the loan based on the condition of the house. Usually, the loan-to-value ratio under this program is 60-80%.
This means the property is worth Rs 1 crore; the loan amount can be between Rs 60 and 80 lakh. The maximum loan amount offered by most banks is Rs 1 crore, even when the value of the property is higher.
The maximum loan term offered is 10 to 20 years in major banks.
The bank then disburses a loan amount to the borrower through periodic payments after taking into account a margin for interest charges and price fluctuations.
Periodic payments, also called reverse EMIs, are received by the borrower during the term of the fixed loan. With each monthly or quarterly payment, the individual’s equity or interest in the home decreases.
The loan amount under the program is due after the death of the last survivor. The borrowers heir has the option to settle the loan by paying the amount owed along with accrued interest.
However, if the nominee cannot repay the loan, the bank recovers the amount through the proceeds from the sale of the property.
The additional amount after the sale of the property and the settlement of the loan is paid to the legal heir of the borrower. If the sale proceeds are less than the accrued capital plus the amount of interest, the bank bears the loss.