A ‘Mortgage’ means transfer of an interest in a specific immovable property for the purpose of securing the payment of money advanced as a loan, an existed or future debt. The transferor is called a ‘Mortgagor’ and transferee a ‘Mortgagee’ and an instrument by which transfer is made called ‘MORTGAGE DEED’ which actually depends upon the payment of money secured as ‘Mortgage Money’ as defined under ‘Section:58’ of ‘The Transfer Of Property Act, 1882’.
‘Reverse Mortgage’ is the new concept in India and less effective though it is very popular in the western countries, but in India it can be seen as from the numbers of persons i.e. 150 persons have availed its benefit till now and this type of mortgage is basically helps senior citizens to get regular payments from the financial entities or banks against the mortgage of his property. A reverse mortgage is totally a different concept from a regular mortgage process where a person pays the bank for a mortgaged property and unlike other loans, this need not be repaid by the borrower.
‘Reverse Mortgage’ is one of the important types of mortgage where owner of the immovable property surrenders his title of the property to a financial entity or bank. The concept is simple, a senior citizen who holds a house or property, but lacks a regular source of income can put mortgage his property with a bank or housing finance company (HFC) and the bank or financial entity pays the person a regular payment. The good thing is that the person who ‘reverse mortgages’ his property can stay in the same house for his life time and continue to receive the much needed regular payments. So, effectively owner of the property will continue to stay at the same place and also get paid for it. Any house owner over 60 years of age is eligible for a reverse mortgage and the maximum loan which can be granted is up to 60% of the value of residential property. The Reverse Mortgage is otherwise called as lifetime mortgage.
‘Reverse Mortgage’ loan amount based on the three things i.e. value of the property, term of the mortgage agreement and rate of payment with interest which depends upon the age of the owner of the property/ borrower of the loan amount. A mechanism for valuation and computation of the mortgage property depends upon the law of probability which will be assessed by the professionals. The loan amount can be provided through monthly, quarterly, half-yearly or annually or lump sum money based on the mutual understanding of the parties to the mortgage agreement. The maximum period of a loan which can be provided by the banks to the reverse mortgage borrower is for 15 years but the lender has to revaluate the property at least once in the 5 years so that it will assist him to get more money as a loan from the bank which is totally based on the value of the property. The value of the property is generally revisited periodically, if the value of the property increased then senior citizen will get an option to increase the loan amount.
An advantage of the Reverse Mortgage scheme is that the owner of property will not be liable to pay Income Tax under ‘Income Tax Act’ because in reverse mortgage transaction whatever amount has been received either in lump sum or monthly installment by the owner of the property as loan amount, will not be considered as a Income earned. A reverse mortgage scheme which is basically for the benefit of senior citizens, however in a reverse mortgage transaction any transfer of capital asset will not be considered as transfer or alienation of immovable property as it is also stated by the central government notification, hence it will not attract the provision of capital gains tax.
The financial entity or the bank has authoritative power to recover the loan amount, wherein it has been conferred with a right to sell the mortgage property in the case if incumbent or borrower either passes away or leaves the house. The loan amount can be repaid or prepaid by the legal heirs of the borrower at any time during the period of loan with the accumulated interest amount and have the mortgage released without resorting to the sale of property. In case if there is a sale of mortgage property by the bank for repayment of the loan amount then whatever is the additional amount received by the bank need to be paid to the heirs of the senior citizen but only after clearing the loan amount payment by the bank.
The reverse mortgage scheme offered by some of the leading banks in India could bring the required answers to the suffering senior citizens. Most of the people in the senior age groups, either by inheritance or by virtue of building assets have properties in their names, but they were not able to convert it into instant and regular income stream due to its illiquid nature. The ‘Union Budget 2007-2008’ had a great proposal which introduced the ‘Reverse Mortgage’ scheme. A Reverse Mortgage scheme is always provides more benefits to the senior citizens who does not have any source of income and through this scheme owner of the property can ensure a regular cash flow in times of need and can enjoy the benefit of staying in the property as well. But a reverse mortgage scheme is a big failure in the country like India where number of persons using this scheme is very less. Reverse Mortgage thus, is very beneficial for senior citizens who want a regular income to meet their everyday needs, without leaving their houses.