Home Loan vs Home Construction Loan - Which Is Better? - Home Loan Stories

25 MAY, 2021

One of the major concerns of post-retirement life is the lack of regular income. On the other hand, due to increased cost of living and healthcare expenses, having a steady flow of income has become the need of the hour. To tackle this issue, the Central Government introduced ‘Reverse Mortgage’ in the 2007-08 Union Budget. With the help of a reverse mortgage, senior citizens across the country can take care of their day-to-day expenses and live a financially independent life by mortgaging their property.

So, what exactly is a reverse mortgage, and what are its benefits? Scroll down to learn more.

Reverse Mortgage and Its Benefits

Reverse Mortgage is a concept that is completely opposite to that of a mortgage loan. Under reverse mortgage, senior citizens above the age of 60 can choose to mortgage their property to a bank, and in return, receive regular payments from them. The best part about a reverse mortgage is that the borrowers do not need to vacate their house and can continue to stay for the rest of their life.

In the case of reverse mortgage, the value of the property is derived basis different factors such as demand and supply, prices of immovable property, current market value and interest rate. Once the property’s value is determined, the bank lends the borrower a certain amount in the form of a loan at regular intervals. It is to be noted that with the reception of each payment from the bank, the equity of the borrower in the house decreases.

Let’s check out some of the important benefits of reverse mortgage.

Benefits of Reverse Mortgage

Financial liberty

Reverse mortgage helps senior citizens become financially independent, and hence, they do not have to rely on their children for financial support. Moreover, the funds obtained through reverse mortgage can be used for any purpose as per the needs of the borrower.

Minimum eligibility criteria

Senior citizens who own a residential house and are above 60 years of age can easily avail a reverse mortgage loan. The residential house must be in the name of the borrower, or jointly with their spouse.

Long tenure

Since reverse mortgage comes with a long tenure, senior citizens can ensure a steady flow of income to manage their routine expenses.

Property valuation

In the case of reverse mortgage, banks re-evaluate the property after every 5 years. Hence, if the value of the property increases over time, borrowers can increase the loan value and avail a higher lump sum amount.

Tax benefits

Under the Income Tax Act, 1961, the amount obtained through a reverse mortgage is eligible for tax deductions. However, a capital gain tax will be charged at the time of alienating the mortgaged property in order to repay the loan.

Though there are numerous benefits of a reverse mortgage loan, most people are a bit hesitant to mortgage their property to a bank as they wish to transfer the property to their children.

Reverse mortgage can help borrowers lead a financially stable life even post-retirement, and hence opting for it wouldn’t be a bad decision. Lastly, it is advisable to compare various aspects such as interest rate, application process, customer service, etc. of different banks before applying for reverse mortgage. In case of any query, it is best to seek the help of a financial expert to help you make a well-informed decision.

Home Loan vs Home Construction Loan - Which Is Better?

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