Reverse Mortgage

 

Reverse Mortgage

The government has given a big boost to reverse mortgage  products by making annuity earned by senior citizens on RM loans tax-free. In another important development, it has removed the 20 year annuity payment restriction and made it lifetime for a borrower.

The revised scheme enables a person above the age of 60 years to avail of monthly payments from insurance company as annuity till the life time against the mortgage of his/her house while remaining the owner and occupying the house.

According to a notification issued by Central Board of Direct Taxes (CBDT), the period for reverse mortgage loan is extended to 'the residual life time of the borrower' from 20 years. Earlier, the period of reverse mortgage loan was 20 years from the date of signing the agreement by the reverse mortgagor and the approved lending institution.

As per the scheme, on the borrower's death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property. The borrower or heir can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.

For senior citizens with no dependants, the proposal of a reverse mortgage in the Budget 2007-08 was supposed to be a perfect way to earn regular income and unlock the value of their property.

However, the products had few takers due to numerous problems. One, the annuity paid by banks, though tax-free, was quite low. If the bank had a tie-up with an insurer, the annuity amount was much higher but taxable. This was because the amount paid by banks was treated as a loan whereas the insurers’ annuities were treated as income. The product was available for only 20 years.

Date:  25-10-2013

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