Reverse mortgage can unlock the value of the property and provide tax-free pension to the owner.
Looking for a source of regular income after retirement? You don’t have to look beyond the four walls of your house. Reverse mortgaging your house can get you a regular income in your sunset years. What’s more, it is completely tax-free. “Reverse mortgage is the most tax-efficient way of earning a pension”.
Reverse mortgaging is especially useful if you have not saved enough for retirement or concentrated your wealth in real estate. Financial planners advise clients to put away at least 10% of their monthly income for retirement. This is not possible if you have a hefty home loan EMI to pay and loads of other expenses.
However, this should not mean a life of penury after retirement. Banks are willing to give loans against property to senior citizens. In return, the bank becomes a part owner of the house. In this way, cash-strapped senior citizens can unlock the value of their property without actually selling it.
However, this should not mean a life of penury after retirement. Banks are willing to give loans against property to senior citizens. In return, the bank becomes a part owner of the house. In this way, cash-strapped senior citizens can unlock the value of their property without actually selling it.
Though the concept is very common in developed markets, reverse mortgage has not picked up in a country where real estate also has an emotional value. People love their homes so much that they cannot bear the thought of selling the property.
It’s time to get rid of this misconception about reverse mortgage. If an owner puts up his house for reverse mortgage, it does not mean he has sold it. He has merely taken a loan against it. After his death, his legal heirs will have the option to either repay the loan along with the interest and regain the property or let the bank sell it and give them the proceeds after deducting the borrowed amount.
How reverse mortgage works
1) Reverse mortgage is the opposite of a home loan.
2) Instead of paying EMIs, the house owner gets monthly payments from the bank.
3) The sum depends on the value of the property. The owner can borrow up to 75% of the value.
4) The money received is a loan and, therefore, tax-free.
5) With each payment, the bank’s ownership of the house increases.
6) After the owner’s death, his heirs have to repay the reverse mortgage loan to the bank.
7) Only senior citizens can avail of reverse mortgage. They should be living in the house that is being mortgaged.
source:ET Wealth
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