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Pros and Cons of Reverse Mortgage Loan Scheme
Reverse Mortgage Loan (RML) scheme comes
as a new hope for the senior citizens in India. Generally,
retired people become dependent on their meager pension or
family members to sustain. Considering the same and to resolve
the issue, NHB, a subsidiary of the Reserve
Bank of India (RBI) and its regulatory authority for the
home loan, drafted the norms for this scheme.
Any person above 60 years can ask for RML
and it is applicable for only residential properties. Since,
senior citizens require liquid assets to pay for their daily
needs; they have the option of mortgaging the house they live
in as titleholders to a bank or any financing institution.
Now, the responsibility of making the payments falls with
the lender. Whether he pays the amount in lump sum or periodically,
it depends on the agreement signed between the lender and
borrower. The tenure can be 15 years or till the death of
the borrower, whichever comes first.
Complying with the guidelines released by
RBI, most banks have already brought the scheme into effect
whereas some are in the process of executing it.
Punjab
National Bank has adopted the scheme and named it as ?PNB
Baghban?. Other prominent banks including ICICI, HDFC, Bank
of Baroda, Oriental bank of Commerce, LIC Housing Finance
are planning to introduce their respective schemes soon.
The biggest advantage that the scheme brings
is that it eliminates a need for senior citizens to service
the loan during their lifetime. The lender recovers the entire
loan, including accrued interest on the death of the borrower
by selling the property. The remaining amount is returned
to the heir of the deceased borrower. However, the spouse
of the borrower can continue to live in the house even after
his/ her death. Also, the borrower has the option to repay
the loan at any time.
As far as the amount of the loan is concerned,
it largely depends on market value of residential property,
as estimated by the lender, and the current rate of interest.
Also, the age of the borrower will be another determinant.
Senior citizens can also earn good amount
without selling their property. However, it depends on the
lender to agree on to a deal with the borrower (senior citizens),
as their requirements are focused and the scheme specific.
Let?s now check out the kind of problem with
RML which pertains to the taxation rules. The central board
of direct taxes (CBDT) has not issued any specific directives
on how it will treat the loan amount sanctioned to the senior
citizens. However, not everyone sees it as a serious issue.
The payments will only be from a capital resource and not
from any other income source. Moreover, it cannot constitute
income to recipient. Income will only arise only from the
sale, as capital gain. In case, the property is claimed by
any legal heir by discharging the lenders, there would be
no income to consider.
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