What is Reverse Mortgage?

Reverse Mortgage Loan enables senior citizens to avail themselves periodical payments or lumpsum from a lender against the mortgage of his/her house while maintaining the ownership and occupying the house. The Senior Citizen borrower is not required to service the loan during his/her
lifetime and therefore does not make monthly repayments of principal and interest to the lender.
Salient Features
The minimum age of the borrower should be 60.

The loan amount is dependent on the value of house property as assessed by the lender, age of the borrower and the prevalent interest rate.

The loan can be provided through monthly/quarterly/half-yearly/annual disbursements or as a lump-sum or as a committed line of credit or as a combination of the three.

The maximum period of the loan is 20 years.

The loan amount may be used by the Senior Citizen
borrower for varied purposes including up-gradation/renovation of residential property, medical exigencies,etc. However, use for speculative trading and business purposes is not permissible.

Valuation of the residential property is done at such frequency and intervals as decided by the reverse mortgage lender, which in any case shall be at least once in every five years.


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 her heir can repay the loan with
accumulated interest and have the mortgage released without resorting'to sale of the property. The borrower or heir also has the option of prepaying the loan at any time during the loan tenor or later without any prepayment levy.


Any amount received by an individual as a loan, either as a lump-sum or as installments, in a transaction of reverse mortgage shall not be included in total income and will not be taxed.
A borrower is liable to capital gain tax only at the
point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.
Mathematics of Reverse Mortgage
First valuation of home is done by lender.
Based on valuation, Loan cost, insurance, loans (if any on the home) and any other costs eligible loan amount is finalized. This is called Cash Value for Advance.
This Cash Value for Advance is grown till the loan
end year by Growth Rate in Credit Line.
This value is converted into EMI (using PMT formula in excel). Your total loan increases every year and home equity decreases.


In the absence of social security provision in India it
can help senior citizens to be financially independent.

Reverse mortgage enables fund inflows in the phase where income sources are generally restricted.

Moreover, the owner can avail of this benefit herself while continuing to reside in the same property
Reverse mortgage need not pay back the reverse
mortgage loan until she decides to move out or sell
the home.
QualifYing for a reverse mortgage is easy because
income and credit history are not considered.

Money from reverse mortgage is not included in
income and considered as tax free.


Home equity in the house keeps decreasing until and unless one repays the loan. This could be an emotional issue for some people.

Reverse mortgages are generally expensive than
traditional home loans.

One may get negative response from family members and legal heirs if one opts for reverse mortgage.

The money one gets from a reverse mortgage is not free money. There are lots of costs (processing fees,insurance etc) and time involved in this. Its working is quite confusing for general public and could be daunting without proper investor education.