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| What is a Reverse Mortgage Loan? |
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Reverse Mortgage Loan (RML) is a Scheme developed by the National Housing Bank (NHB) to help Senior Citizens (persons 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 occupant of the house. The borrowers are not required to service the loan during their lifetime and, therefore, do not make monthly repayments of principal and interest to the lender.
RMLs are extended by Primary Lending Institutions (PLIs), such as Scheduled Banks and Housing Finance Companies (HFCs). |
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| How is an RML different from other Mortgage Loans? |
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Conventional
Mortgage
(housing loan) |
Loan against
Residential Property
(Home Equity loan) |
Reverse Mortgage
Loan |
| Purpose of loan |
To purchase/ upgrade a house |
To get cash from a residential asset for a variety of personal purposes |
To get cash from a residential asset for a variety of purposes including home improvement, repairs and personal purposes |
| Eligible borrowers |
Creditworthy borrowers |
Creditworthy borrowers who have clear title to a house property |
Senior Citizens who have clear title to a house where they reside permanently |
| At time of beginning of loan |
Borrower has no equity in the house |
Borrower has substantial equity in the house |
Borrower has substantial equity |
| During the loan tenure, the borrower… |
- Makes monthly repayments to the lender
- Loan balance goes down
- Borrower's equity grows
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- Makes monthly repayments to the lender
- Loan balance goes down
- Borrower's equity grows
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- Receives payments from the lender
- Loan balance rises
- Equity declines
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| At end of loan, the borrower… |
- Owes nothing to the lender
- Has substantial equity
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- Owes nothing to the lender
- Has substantial equity
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- Owes substantial amount to lender
- Has much less, little, or no equity
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| Modes of repayment |
Monthly (during loan period) |
Monthly (during loan period) |
- Sale proceeds of house property used to settle the loan dues, on borrower's demise or giving up home
- Bullet repayment of principal and accumulated interest
- Borrower/heirs have option to prepay or settle loan dues without sale of property
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| No Negative Equity Guarantee |
Not available |
Not available |
RMLs typically carry 'no negative equity guarantee' i.e. if the sale of the residential property does not cover the outstanding loan, the borrowers or the estate will not be asked to make up for the shortfall, if any, subject to fulfillment of the agreed terms and conditions. |
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| What are the advantages of an RML? |
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The main advantages are:
Income Supplement: Enables house-owning Senior Citizens having inadequate income to meet their financial needs for renovation/repairs to house, medical & other personal purposes.
Retaining ownership: The borrower continues to retain ownership of the house.
Social Security: In the absence of social security for Senior Citizens, RML serves as a partial substitute.
No Repayments: A borrower does not have to repay a RML during his or her lifetime or till such time he or she continues to stay in the house.
Freedom and Flexibility: Amount availed under a RML may be utilized for any purpose other than investing in shares, real estate, trading etc. |
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| What are the eligibility criteria for availing an RML? |
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| The eligibility criteria are as follows: |
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Indian Citizen above 60 years of age. |
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Married couples will be eligible as joint borrowers for joint assistance. In such cases, the age criteria for the couple would be at the discretion of the RML lender, subject to at least one of them being above 60 years of age and the other not below 55 years of age. |
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Should be the owner of a residential property (house or flat) located in India, with clear title indicating the prospective borrower's ownership of the property. |
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The residential property should be free from any encumbrances. |
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The residual life of the property should be at least 20 years. |
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The prospective borrower(s) should use that residential property as permanent primary residence. |
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| Is there some definition of 'permanent primary residence' for the purpose of an RML? |
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| For the purposes of the RML Scheme, permanent primary residence refers to the self acquired, self occupied residential property where a person spends majority of his time. Factors that may be relevant in this regard include the address used for general correspondence, utility bills, bank statements, tax return, bank accounts and banking relations etc. However, the facts and circumstances shall be considered for the purpose of determining that the residential property is the permanent primary residence of the borrower. |
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| Can an RML be availed against property being used for commercial purposes? |
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| No, commercial property is not eligible for availing RML. |
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| What is the amount of money a house owner can get under an RML? |
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| The amount of loan available under RML depends on the age of the borrower, appraised value of the house and the prevalent interest rates of the lending institution. |
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| Who will determine the value of the house? |
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| The value of the house is to be determined by the lender who may use in-house technical personnel or external experts for the purpose. |
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| Are there any ceilings on the amount of monthly/ lump-sum payments to be received by an RML borrower? |
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| Yes, the maximum monthly payments under RML have been 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, to be used for medical treatment for self, spouse and dependants, if any. The balance loan amount would be eligible for periodic payments. |
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| Is the payment(s) received by a borrower under an RML subject to income tax? |
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| All payments under RML shall be exempt from income tax under Section 10(43) of the Income-tax Act, 1961. |
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| Will an RML be subject to capital gains tax? |
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| Any transfer of a capital asset in a transaction of reverse mortgage shall not be regarded as a transfer. A borrower, under a reverse mortgage scheme, will 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. |
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| How does a borrower receive money under an RML? |
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| Any or a combination of the following, mutually decided by the house owner and lender: |
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Periodic payments (monthly, quarterly, half-yearly, annual). |
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Lump-sum payments. |
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Committed Line of Credit: The eligible amount of loan will be sanctioned by the lender to the borrower, to be drawn and utilized by the borrower as and when required, under mutually agreeable terms & conditions. The borrower pays interest only as and when applicable and to the extent of the loan amount drawn. |
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| What are the costs involved in availing an RML? |
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| Like all other loans, lenders may levy various charges such as origination fee, appraisal fee, assessment fee, documentation fee and commitment fee on the un-drawn loan amounts. NHB has advised all lenders that details of all charges should be communicated up-front in a transparent manner to prospective borrowers. Incidence of such charges not being made known to the borrowers upfront may brought to the notice of NHB at its offices given on last page. |
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| What will be the rate of interest of an RML? |
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| The rate of interest and the nature of interest (fixed or floating) will be decided by the lender. |
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| What shall be the tenure of an RML? |
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| The maximum tenure of an RML will be 20 years. |
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| What will be the security to the lender? |
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| The house will be mortgaged to the lender from whom the RML has been availed. |
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| When does an RML become due for repayment? |
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| 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. |
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| How is an RML repaid? |
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| An RML will be settled by proceeds obtained from sale of the house property mortgaged. After the final settlement, the remaining amount (if any) will be given to the borrower or his/her heirs/beneficiary. However, the borrower or his/her heirs may repay the loan from other resources without bringing the property to sale. |
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| What happens if the total dues payable to the lender (i.e. principal + accumulated interest) exceed the value of the property at the time of final settlement? |
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| All RML(s) will carry a 'no negative equity' or 'non-recourse' guarantee. In other words, the borrower will never owe more than the net realizable value of the property, provided the terms and conditions of the loan have been met. |
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| What if the borrower outlives the loan tenure? |
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| The borrower will remain the owner of the house property and need not service the loan during his/her lifetime as long as the property is used as primary residence. Periodic payments under RML will cease after the conclusion of the loan tenure. Interest will accrue until repayment. On death of the borrower or when he/she moves out of the house permanently, the loan will be repaid out of the sale proceeds of the mortgaged house. |
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| Can the house owner prepay an RML? |
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| Yes. A house owner can prepay an RML availed from the lender at any time during the loan tenure. NHB has advised all RML lenders not to levy any prepayment levy/charges. |
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| Who will be responsible for payment of taxes etc. and the maintenance of the property? |
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| The borrower will insure the house against all natural calamities. The borrower will also ensure to pay all taxes, electricity charges, water charges and other statutory payments pertaining to the house. The borrower will maintain the house in good condition. |
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| What are the various events of default under RML? |
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| RML is liable for foreclosure owing to the occurrence of the following events of default: |
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If the borrower has not stayed in the property for a continuous period of one year. |
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If the borrower fails to pay property taxes or maintain and repair the residential property or fails 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 proceeds to meet the outstanding balance of principal and interest. |
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If the borrower declares bankruptcy. |
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If the residential property so mortgaged to the PLI is donated or abandoned by the borrower. |
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If the borrower effects 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 property's title; changing the property's zoning classification; or creating further encumbrance on the property either by way of taking out new debt against it or alienating the interest by way of a gift or will. |
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Owning to perpetration of fraud or misrepresentation by the borrower. |
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If the government under statutory provisions, seeks to acquire the residential property for public use. |
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If the government condemns the residential property (for example, for health or safety reasons). |
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| Will the property be re-valued after an RML has been availed by a borrower? |
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| The lender will re-value the property mortgaged to it at intervals that may be fixed depending upon the location of the property, its physical state etc. NHB has advised that such revaluation may be done at least once every five years, and the quantum of loan may undergo revisions based on such re-valuation at the discretion of the lender. The frequency of revaluation will be made known to prospective borrowers at the time of sanctioning of the loan. |
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| Does the scheme allow the house owner not to avail the loan from a lender even after the completion of the documentation? |
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| NHB has advised lenders that Senior Citizens may be given up to three business days to cancel the transaction, thereby allowing them to exercise their “right of rescission” in case they change their mind. |
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| What if the loan amount has already been disbursed to the borrower? |
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| If the loan amount has been disbursed, the entire amount will need to be repaid by the borrower within the stipulated three day period. However, it will be the discretion of the lender whether or not to charge any interest for the period. |
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| What if a prospective borrower has an existing mortgage on the house? |
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| The borrower may qualify for a reverse mortgage even if he or she still owes money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. |
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| What if the borrower dies before his spouse? |
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| Generally, the owner of the residential property and his/her spouse are joint borrowers in an RML. In the event of death of one borrower (say, the owner), the other (i.e. the spouse) may continue to live in the property till his/her death. |
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| What happens to RML payments if the borrower dies before the culmination of the loan? |
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The payments will continue to be made to the spouse who would have been made a co-borrower at the time of the origination of the RML. |
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| If the property is in the name of both the husband and wife, can the wife get a loan after the death of her husband?
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| Yes. |
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| The period of loan under Reverse Mortgage is 20 years. If the borrower outlives the 20 year span, whether he will continue to get the loan under Reverse Mortgage Loan?
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| No. At present the maximum period for payment is 20 years. However the borrower can continue to stay in the house mortgaged to the lender. |
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| Whether the RML scheme is only for urban areas or is it also for senior
citizens living in semi-urban or rural areas?
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| 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. |
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| Why the word “Reverse Mortgage” is used in Reverse Mortgage scheme? |
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| In case of conventional mortgage loans, the borrower makes monthly repayments (EMIs) to the lender during the currency of the loan ie cash flow is from borrower to lender. On the other hand in the case of a Reverse Mortgage Loan (RML), the flow of cash stream is reversed and the lender makes periodic payments to the borrower during the currency of the RML, against the mortgage of the residential property. Hence the term “ Reverse Mortgage”. |
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| The valuation charges levied by lending agencies are very high? |
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| This aspect is entirely upto to the lending institutions to decide. However all such charges would need to be disclosed to the potential borrower upfront. |
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| Different banks are charging different rates of interest on the Reverse
Mortgage Loan. The rate of interest should be made uniform?
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| The rate of interest is determined by market conditions. Therefore, each lender will determine its lending rate as per its own policy. |
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| If a senior citizen already has loan outstanding, can he avail a loan under the RML to pay off the earlier loan?
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| At present lumpsum Payments are given upto 50% of eligible amount subject to a cap of Rs 15 lacs only for medical exigencies. |
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| Whether the rate of interest on loan is fixed or floating?
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| Each lending institution offers loans as per its own lending policy and the borrower can decide whether to take the loan on fixed or floating basis depending upon the respective terms. |
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| Whether a borrower has to pay EMI ?
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| No |
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| Will Power of attorney holder of a property be eligible for loan? |
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| No. The property should be self-acquired, self-occupied and having clear title in favour of the borrower. |
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| Any permission from legal heir required before applying for loan . Property is in
the senior citizens name ?
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| No permission is required from legal heir before applying for a loan. |
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| House was in my mother’s name. She transferred it to my name. I have all the papers. Am I eligible for the loan ? |
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| Normally not, as it is not self acquired. However depending upon the title to the property, a loan may be considered at the lenders discretion. |
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| Property is in the name of wife. Can the husband take loan? |
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| Loan could be given to the wife and husband could be the co-borrower. |
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| Whether the amounts received under Reverse Mortgage Loan are taxable?
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| As amended in the Union Budget 2008-2009, payments received under Reverse Mortgage Loan are not taxable. |
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| Whether there is any minimum period of ownership of property before availing of RML?
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| No. There is no minimum period of ownership of property required. |
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| Whether a property in a Co-op.Hsg. Soc. is eligible under RML?
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| Yes. The property should have a clear title and be mortgagable to the lender. |
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| Whether the loan can be paid off and the title deeds taken back? |
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| Yes. The Reverse Mortgage loan can be prepaid at any time during the currency of the loan. On clearance of all the dues, all the title deeds will be returned by the lender. |
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