Reverse Mortgage Loan For Senior Citizens

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What is Reverse Mortgage?

Reverse mortgage is a loan available for senior citizens on property pledged to bank or financial institute. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (i.e. moves to aged care).

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Workings of Reverse Mortgage

A Reverse Mortgage is a non-recourse home loan. This means there is no personal liability to you or your heirs. The bank makes an evaluation of the current value of the home, decides the likely lifespan of the applicant home-owner (and his/her spouse), and, decides what percentage of the current value they are willing to loan. You will have the option of taking the loan principal in a single lump-sum amount or by a fixed monthly amount instead. The loan becomes due when you sell the property, moves to another house or dies. If one of the spouses dies, the other can continue living in the house.

No Tax Liability

In case you and your spouse die your heir can settle the overall outstanding loan and retain the house. If your heir fails to retain or settle the overall outstanding loan, the bank will proceed to settle the outstanding loan and give the rest to the heirs. Recent reports seem to indicate that a very small percentage of senior citizens seem to have taken advantage of the facility. The maximum period of property mortgage is 15 years with a bank or HFC. The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.