Pros and Cons of Reverse Mortgage Loan Scheme
11:48 AM
Reverse Mortgage Loan (RML) scheme comes as a new hope for the senior citizens in India. Generally, retired people become dependent on their meager pension or family members to sustain. Considering the same and to resolve the issue, NHB, a subsidiary of the Reserve Bank of India (RBI) and its regulatory authority for the home loan, drafted the norms for this scheme.
Any person above 60 years can ask for RML and it is applicable for only residential properties. Since, senior citizens require liquid assets to pay for their daily needs; they have the option of mortgaging the house they live in as titleholders to a bank or any financing institution. Now, the responsibility of making the payments falls with the lender. Whether he pays the amount in lump sum or periodically, it depends on the agreement signed between the lender and borrower. The tenure can be 15 years or till the death of the borrower, whichever comes first.
Complying with the guidelines released by RBI, most banks have already brought the scheme into effect whereas some are in the process of executing it.
Punjab National Bank has adopted the scheme and named it as ?PNB Baghban?. Other prominent banks including ICICI, HDFC, Bank of Baroda, Oriental bank of Commerce, LIC Housing Finance are planning to introduce their respective schemes soon.
The biggest advantage that the scheme brings is that it eliminates a need for senior citizens to service the loan during their lifetime. The lender recovers the entire loan, including accrued interest on the death of the borrower by selling the property. The remaining amount is returned to the heir of the deceased borrower. However, the spouse of the borrower can continue to live in the house even after his/ her death. Also, the borrower has the option to repay the loan at any time.
As far as the amount of the loan is concerned, it largely depends on market value of residential property, as estimated by the lender, and the current rate of interest. Also, the age of the borrower will be another determinant.
Senior citizens can also earn good amount without selling their property. However, it depends on the lender to agree on to a deal with the borrower (senior citizens), as their requirements are focused and the scheme specific.
Let?s now check out the kind of problem with RML which pertains to the taxation rules. The central board of direct taxes (CBDT) has not issued any specific directives on how it will treat the loan amount sanctioned to the senior citizens. However, not everyone sees it as a serious issue. The payments will only be from a capital resource and not from any other income source. Moreover, it cannot constitute income to recipient. Income will only arise only from the sale, as capital gain. In case, the property is claimed by any legal heir by discharging the lenders, there would be no income to consider.
Any person above 60 years can ask for RML and it is applicable for only residential properties. Since, senior citizens require liquid assets to pay for their daily needs; they have the option of mortgaging the house they live in as titleholders to a bank or any financing institution. Now, the responsibility of making the payments falls with the lender. Whether he pays the amount in lump sum or periodically, it depends on the agreement signed between the lender and borrower. The tenure can be 15 years or till the death of the borrower, whichever comes first.
Complying with the guidelines released by RBI, most banks have already brought the scheme into effect whereas some are in the process of executing it.
Punjab National Bank has adopted the scheme and named it as ?PNB Baghban?. Other prominent banks including ICICI, HDFC, Bank of Baroda, Oriental bank of Commerce, LIC Housing Finance are planning to introduce their respective schemes soon.
The biggest advantage that the scheme brings is that it eliminates a need for senior citizens to service the loan during their lifetime. The lender recovers the entire loan, including accrued interest on the death of the borrower by selling the property. The remaining amount is returned to the heir of the deceased borrower. However, the spouse of the borrower can continue to live in the house even after his/ her death. Also, the borrower has the option to repay the loan at any time.
As far as the amount of the loan is concerned, it largely depends on market value of residential property, as estimated by the lender, and the current rate of interest. Also, the age of the borrower will be another determinant.
Senior citizens can also earn good amount without selling their property. However, it depends on the lender to agree on to a deal with the borrower (senior citizens), as their requirements are focused and the scheme specific.
Let?s now check out the kind of problem with RML which pertains to the taxation rules. The central board of direct taxes (CBDT) has not issued any specific directives on how it will treat the loan amount sanctioned to the senior citizens. However, not everyone sees it as a serious issue. The payments will only be from a capital resource and not from any other income source. Moreover, it cannot constitute income to recipient. Income will only arise only from the sale, as capital gain. In case, the property is claimed by any legal heir by discharging the lenders, there would be no income to consider.
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