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Should a senior citizen opt for reverse mortgage to get regular income?

Reverse mortgage enables senior citizens to convert their one big asset —their home—into a source of regular income without giving up ownership.

Updated: Aug 05, 2019, 10.54 AM IST
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The income will stop at the end of the tenure but senior citizen can occupy the house till death.
Suresh Gandhi is 68. He has been living alone in his own home in Baroda since his wife passed away a few years ago. His daughter is married and lives abroad, while his son lives in Mumbai and has no intention of moving back to Baroda. Gandhi is used to living independently and does not want to move to live with his son in a new city.

He is a heart patient and has to spend a lot on medicines. He is not satisfied with his pension and but will not take money from his children for regular household expenses and medical care. His friend suggested that he opt for reverse mortgage. Should he?

A reverse mortgage enables senior citizens like Gandhi to convert their one big asset —their home—into a source of regular income without giving up ownership. Considering that his children are well settled and do not want to move back, reverse mortgage is a good option for Gandhi as it will ease his monthly cash crunch.

A reverse mortgage is the opposite of a home loan. Gandhi will have to pledge the rights to his home to the lender in return for a regular stream of income. Based on the demand for his property, current property prices, and the condition of the house, the lender will disburse a loan amount, usually around 60% of the property value, either as a lump sum or periodic payments. The periodic payments, also known as reverse EMI, will be paid over a fixed tenure (maximum of 15 years). These payments do not attract any income tax or capital gain tax.

The income will stop at the end of the tenure but Gandhi can occupy the house till death. No repayment is required as long as he lives. The reverse mortgage loan will become due either when Gandhi dies or if he decides to sell the house. On his death, his children will have the option to pay back the loan and retrieve the house or let the lender take over the property.

Reverse mortgage is an ideal option for senior citizens who require a regular income to supplement their pension without depending upon anyone else. However, it should be seen as a last resort, and not a routine form of financing cash requirement for senior citizens.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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