Reverse Mortgage Loan (RML)
Reverse Mortgage Loan (RML) is a financial product that enables senior citizens (age of 60 +) who own a house to mortgage their property with a lender and avail periodical payments against the mortgage of his/her house while remaining the owner and occupying the house.
Salient Features
- Eligible borrowers- RML enables a Senior Citizen i.e. above the age of 60 years to avail of periodical payments from a lender against the mortgage of his/her house while remaining the owner and occupying the house.
- Repayment- Senior Citizen borrower is not required to service the loan during his/her lifetime and therefore does not make monthly repayments of principal and interest to the lender.
- Eligible lenders- RMLs are extended by Primary Lending Institutions (PLIs) viz. Scheduled Banks and Housing Finance Companies (HFCs) registered with NHB.
- Loan limit- The loan amount is dependent on the value of house property as assessed by the lender, age of the borrower(s) and prevalent interest rate.
- Nature of payment- The loan can be provided through monthly/quarterly/half-yearly/annual disbursements or a lump-sum or as a committed line of credit or as a combination of the three. The maximum monthly payments shall be capped at Rs.50, 000/-. The maximum lump-sum payment shall be restricted to 50% of the total eligible amount of loan subject to a cap of Rs.15 lakh. Lump-sum payments may be conditional and limited to medical exigencies.
- Loan tenure- The maximum period of the loan is 20 years. (The maximum period over which the payments can be made to the reverse mortgage borrower).
- Purpose of loan- The loan amount may be used by the Senior Citizen borrower for varied purposes including up-gradation/ renovation of residential property, medical exigencies, etc. However, use of RML for speculative, trading and business purposes is not permissible.
- Valuation of the residential property would be done at such frequency and intervals as decided by the reverse mortgage lender, which in any case shall be at least once every five years.
- The quantum of loan may undergo revisions based on such re-valuation of property at the discretion of the lender.
- The borrower(s) will continue to use the residential property as his/her/their primary residence till he/she/they is/are alive, or permanently move out of the property, or cease to use the property as permanent primary residence.
- All reverse mortgage loan products are expected to carry a clear and transparent ‘no negative equity’ or ‘non-recourse’ guarantee. That is, the Borrower(s) will never owe more than the net realizable value of their property, provided the terms and conditions of the loan have been met. The lender will have limited recourse i.e. only to the mortgaged property in respect of the RML extended to the borrower.
- Repayment- On the borrower’s death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property.
- The borrower(s)/heir(s) can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.
- The borrower(s) or his/her heirs also have the option of prepaying the loan at any time during the loan tenor or later, without any prepayment levy.
Taxation Issue
- Capital gain or not: A new clause (xvi) in section 47 of the Income-tax Act, 1961 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 shall not be regarded as a transfer.
- Included in total income or not: Section 10 of the Income tax Act, 1961 has been amended to provide that any amount received by an individual as a loan, either in lump-sum or in installment, in a transaction of reverse mortgage referred to in clause (xvi) of Section 47 of the Income-tax act shall not be included in total income.
Note: A borrower, under a reverse mortgage scheme, shall, 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.
Eligibility
- Should be a Senior Citizen of India above 60 Years of ag
- married Couples will be eligible as joint borrowers provided one of them being above 60 years of age and other not below 55 years of ag
- Should be the owner of a self- acquired, self-occupied residential property (house or flat) located in India.
- The residential property should be free from any encumbrances.
- The residual life of the property should be at least 20 years.
- The prospective borrowers should use that residential property as permanent primary residence.
Foreclosure
Loan Shall Be Liable for Foreclosure in the Occurrence of Following:
- If the borrower has not stayed in the property for a continuous period of one year.
- If the borrower(s) fail(s) to pay property taxes or maintain and repair the residential property or fail(s) to keep the home insured, the PLI reserves the right to insist on repayment of loan by bringing the residential property to sale and utilizing the sale proceeds to meet the outstanding balance of principal and interest.
- If borrower(s) declare himself/herself/themselves bankrupt.
- If the residential property so mortgaged to the PLI is donated or abandoned by the borrower(s).
- If the borrower(s) effect changes in the residential property that affect the security of the loan for the lender. For example: renting out part or all of the house; adding a new owner to the house’s title; changing the house’s zoning classification; or creating further encumbrance on the property either by way taking out new debt against the residential property or alienating the interest by way of a gift or will.
- Due to perpetration of fraud or misrepresentation by the borrower(s).
- If the government under statutory provisions, seeks to acquiring the residential property for public use.
- If the government condemns the residential property (for example, for health or safety reason
Frequently Asked Questions (FAQ)
Is the payment(s) received by a borrower under an RML subject to income tax?
All payments under RML shall be exempt from income tax under Section 10(43) of the Income-tax Act, 1961.
When does an RML become due for repayment?
An RML will become due and payable only when the last surviving borrower dies or permanently moves out of the house. The loan may, however, be liable to foreclosure on the occurrence of certain events of default.
Whether the RML scheme is only for urban areas or is it also for senior citizens living in semi-urban or rural areas?
The scheme is applicable for the entire country including rural areas. The property should be mortgagable. In some rural areas agricultural land cannot be mortgaged and hence reverse mortgage loans cannot be considered against a house constructed on such agricultural land.