Queries

Reverse Mortgage Can Be Taken For Up To 20 Years

Ashok Dixit

I took a home loan in 2015. I have received an extra bonus and want to prepay a part of my outstanding loan, but the bank is asking for penalty charges. Are they within their legal rights to ask for it? Also, they had given me a choice whether to increase the equated monthly instalment (EMI) or tenure. I chose the former and informed them that I would want to prepay the loan. Should I change my bank?

The bank is within its legal rights to levy a penalty if the prepayment penalty clause is included in your home loan agreement.

If you want to prepay your loan, consider how you would like to proceed, by reducing the tenure or the EMI.

If you are planning to change your bank, consider the foreclosure charge and the processing fee you would pay to your existing and new bank, respectively. Also factor in the rate of interest.

Besides, consider the tax benefits you are availing under Section 80C for the Income-tax Act, 1961, for repayment of principal and under Sections 24, 80EE or 80EEA for payment of interest on your home loan.

Uma S. Chander, CFP CM, Handholding Financials

Arun Rao

I retired from the private sector in 2006 and have only my Provident Fund, to take care of myself and my wife. My wife is also retired and has only her bank savings. I am thinking of taking a reverse mortgage on my three-beroom house to have some financial liquidity. How should I proceed with it? I own the house and repaid the home loan entirely while in service. I have no outstanding debt, no other source of income, and cannot give my house on rent.

A few banks, such as the National Housing Bank (NHB), State Bank of India (SBI), Punjab National Bank (PNB), Central Bank of India, Indian Bank, Andhra Bank, Dewan Housing Finance Limited (DHFL), LlC Housing Finance, Corporation Bank and Canara Bank offer reverse mortgage loans.

Given that we do not have a social security system in India, and as you have mentioned that you do not have any other asset to fall back upon, a reverse mortgage will give you some liquidity for unplanned expenses, such as a medical emergency.

Things To Keep In Mind

• Anyone aged 60 years and above with a spouse aged 58 and above can take a reverse mortgage loan.
• Your spouse can be a co-borrower if she is aged above 55 years.
• The maximum amount offered is Rs 1 crore.
• The amount of loan depends on the age of the borrower and the prevailing rate of interest.
• The minimum tenure is 10 years and the maximum is 20 years.
• The property must be owned by you, not rented, and you should be using it as your primary residence.
• You cannot take a reverse mortgage on a commercial property.
• The residual life of the property should be at least 20 years.
• Banks could levy processing fees, including stamp duty, property insurance, GST charges, and so on.
• You can repay your reverse mortgage loan, without attracting penalties.
• The property valuation is done every five years.
• In case you want to renovate your home, you need to seek permission from the bank.
• Lastly, you can opt for monthly, quarterly, half-yearly, yearly, or lump sum payouts.

Documentation

• Proof of identity
• Proof of residence or address
• Property papers
• Account statement of last six months for all bank accounts held
• Loan account statement of the last one year (if any)
• Others

Tax Benefits

• Income you receive is not taxable.
• Any renovation expenses can be considered deductible expenses in the computation of income.
• Repayment of the loan will not be considered deductible.

Hina Shah CFPCM, Financial Coach, LUHEM