Making reverse mortgage a living reality, the Government of India has notified the Reverse Mortgage Scheme, 2008 under clause (xvi) of section 47 of the Income-tax Act, 1961. The new law comes as a wonderful respite for those persons who, for whatever reason, did not plan their retirement and are left with no asset other than the house they live in.
Under the scheme any individual who is sixty years of age or above or any married couple (where either the husband or the wife is sixty or above) are “eligible persons” for entering into a reverse mortgage transaction with an approved bank/lending institution. It is necessary that the mortgaged asset should be owned by the eligible person and free from encumbrance.
In the case of reverse mortgage, the borrower mortgages the house with the housing finance company and in return receives, either monthly or periodic payment, from the housing finance company. So in this case the lender institution pays the borrower individual(s) either monthly or periodically or issues a line of credit for a certain amount.
After the death of the borrower(s), the housing finance company sells the house and settles the loan account from that amount and pays the balance amount to the legal heirs.
Also at any time during the pendency of the loan, the borrower or the legal heirs, as the case may be, can settle the loan amount and the house then becomes mortgage free.
Truly a case of out-of-the-box-thinking…which can meaningfully help people in their sunset years!
Note: It may be recalled that Finance Act, 2008 has amended the Income Tax Act, 1961 to stipulate that reverse mortgage would not amount to "transfer” and such amount will not be included in the total income.
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