Q1. What is reverse mortgage loan?
Ans. As the name suggests, it is the opposite of the traditional mortgage, where the lender makes periodic payments to the borrower. It you to capitalize the house you own to meet urgent cash needs, and all loan payments are exempt from income tax under section 10(43) of the income tax act, 1961.
Q2. Who is eligible?
Ans. These are only available to senior citizens (60 years and above), who reside in a house of their own. In addition to that, the property in question must be free of disputes.
Q3. Who is the maximum loan amount?
Ans. The maximum amount that can be loaned typically depends on the market value of the house, as estimated by the lending institute. The lender also reserves the right to periodically reevaluate the condition of the property (every 5 years or so) and make changes to the loan agreement, as they see fit. Usually, the maximum loan amount is capped at INR 1 crore.
Q4. What is the loan repayment structure like?
Ans. The loan shall be liable for repayment when the last surviving borrower dies, sells the house or permanently moves out of the house. In the event of the death of the last surviving borrower, the legal heir will have a chance to settle the loan. In case the loan is not repaid until after 6 months of the borrower’s death, the lender is allowed to sell the property.
Q5. What interest rate is associated with these?
Ans. The interest rate is determined by a host of factors including risk perception and loan pricing policy of the lender. Fixed or floating rate of interest may be offered, as per the consensus reached between borrower and lender. Typically, interest rate ranges between 12.5-19.5%.
Q6. Is prepayment in this possible?
Ans. The borrower has the option to prepay the loan at any point during the tenure of the loan. Usually, a 2% fee is charged.
Q7. What do lenders look for in potential borrowers?
Ans. The prospective borrower must be a resident of the property against which s/he is seeking the loan. In addition, to ensure that the borrower can afford to pay house tax and insurance during the tenure of the loan, the lenders look at all income streams of the borrower including pensions and investments.
Q8. For what purposes can the loaned money be used?
Ans. The loan amount can be utilized for the following purposes:
- Up gradation, renovation or extension of property.
- Medical emergencies and/or maintenance of the family.
- For supplementing a pension or other income sources.
- Meeting any other genuine need.
However, use of such funds for speculative and investments purposes are not usually permitted.