Banks offer senior citizens certain tailor-made financial products for their convenience. For instance, they offer a product called the reverse mortgage loan (RML), which helps older people earn income without tax liability, provided they sell their house.
But there is a catch. To avail of a reverse mortgage loan, the homeowner must vacate the house until his death. So what banks do is that they offer around 60-80 per cent of the house's market value as a loan, which they disburse with interest for a pre-defined period.
After the homeowner's death, the legal heirs have two options. One, they can repay the loan with interest; and second, they can let the banks recover the loan by selling the house.
The applicant must be 60 years or older to avail of RML, shouldn't have any existing loan, and the house must be self-owned. Those living in rented apartments are not eligible. However, the person must pay all the incidental living expenses.
With an example, the Bank of Baroda (BoB) explains on its website that suppose the bank offers the applicant Rs 80 lakh in a reverse mortgage loan for a 15-year tenure, with a 10 per cent interest per annum.
He will receive a monthly payment of Rs 19,302. So after 15 years, the bank would have paid Rs 34,74,360 (Rs 19,302 x 180 months). The difference between the loan amount and the actual amount paid is the interest amount.