Mortgage means to place collateral. Therefore, mortgage loan in home loan industry is the loan taken against the property pledged as collateral. The mortgage loan is beneficial in comparison to other instant loans such as personal loan and business loan because of its rate of interest, processing fees, foreclosure charges & closure conditions, etc. Also referred to as Loan Against Property, a mortgage loan is taken to meet the personal fund requirements such as children education, child marriage, medical treatment, business expansion, etc. The mortgage loan by lender Bank/NBFC/HFC is provided only to those borrowers who has a regular flow of legal income and is within the maximum retirement age 60 years. As a result, the senior citizens were excluded from taking the mortgage loan. Hence with the view of extending the benefits of mortgage loan to the elderly the Union Government of India introduced the concept of Reverse Mortgage allowing them to borrow the funds through property mortgage, to meet their financials requirements of day-to-day expenses and increasing cost of medical treatments.

Difference between Mortgage Loan & Reverse Mortgage Loan

Sr. No.

Mortgage Loan

Reverse Mortgage Loan

1

Meaning

A mortgage is a type of secured loan as it is secured against the collateral provided. The collateral means pledging of property to obtain the loan.

Loan for senior citizen above 60 years to avail regular/periodical payments from Banks/ NBFC against the mortgage of their house while still retaining the ownership of the house and occupying the same.

2

Who Can Apply

Salaried and self employed individuals.

Retired, senior citizens above 60 years.

3

Purpose

Can be used for children education, child marriage, business expansion.

Can be used only meeting the livelihood expenses and medical expenses.

Can be used for purchasing another property.

Cannot be used for any investment or purchasing property.

4

Property Type

Ownership residential as well as commercial property can be mortgaged.

Only ownership residential property can be mortgaged.

No commercial property is allowed.

5

Property Ownership

Ownership transferred on ancestral property as well as property with gift deeds can be considered.

Ancestral property is not considered. Senior citizen must possess a self acquired and self owned or jointly owned property with the spouse.

6

Residential Life Of The Property

5 years – 50 years. Above 50 years structural audit report is mandatory.

Should not be less than 20 years.

7

Providers

All banks and NBFCs.

Only selective nationalized banks and few private banks.

8

Age Limit

Salaried – up-to 60 years

Self-employed – up-to 65 years

Senior citizen above age of 60 years.

9

Eligibility

Must have regular monthly income flow.

Does not require any Income.

10

CIBIL

CIBIL score of minimum 750 and above is required.

Does not require any credit score requirement.

11

Loan Tenure

Maximum 15 years.

Minimum 10 years till lifetime of the borrower’s age.

12

Loan Disbursement

Full Disbursement of loan amount. No partial Disbursement.

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

13

Loan Limit

No capping on the loan amount.

Maximum loan limit has been capped to 50 Lakhs – 1 Crore.

14

Processing Fees

0.40% – 1.5% of the loan amount.

0.50% of the loan amount.

15

Interest

Interest is charged on the total principal and is paid up-front with the principal in equated monthly instalments.

Interest is charged only on the principal amount taken and the interest is rolled to the principal amount, which is payable on loan closure.

16

Rate On Interest

Base rate + 1% – 2%.

Base rate + 2.75 % – 3%

17

EMI

Consists of Principal + interest amount.

There are no such EMI.

18

Repayment

Repayments are made via EMI throughout the loan tenor OR when borrower willingly pre-closes the loan.

Loan + interest become payable only when the borrower sells the house or moves away permanently or when the last surviving borrower dies OR when borrower willingly pre-closes the loan.

19

Foreclosure Charges

No pre & part payment charges on floating rate of interest.

Closure charges of 2% – 4% on the loan amount for fixed interest rates.

No pre-payment charges.

20

Tax Benefits

Tax exemptions is applicable only on interest paid:

1. a) End-use is for business purpose- interest can be claimed as business expenses under section 37 (1).
2. b) End-use for purchasing house or home renovation or repairs interest can be claimed under section 24(b).
3. c) End-use for personal reasons, education, marriage, etc – no interest exemption.

Note: Important documents must be maintained to authenticate and justify the end-use of the loan, in order to claim the income tax exemption on interest.

All payments under reverse mortgage is exempt from Income Tax, under section 10(43).

If the bank sells the property, borrower become liable to pay the income tax on the capital gain derived on selling the property.

Also, the annuity income in the hands of the borrower is taxable.

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