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A retired couple in their late 70s lives in a quiet Delhi neighbourhood. Their home, a modest two-storey house, is fully paid for. Their children have settled abroad. Over the years, they’ve dipped into their savings for emergencies, and now, with rising healthcare costs and monthly expenses, money feels tighter than ever.
Selling the house? Not an option; it holds too many memories. Moving in with their children? Not practical. One morning, during a casual conversation, their banker suggests something strange: “Why not take a loan where the bank pays you every month?”
The idea sounds upside down. Aren’t loans supposed to go the other way?
Reverse mortgage loans
A reverse mortgage is, quite literally, the opposite of a regular loan. Instead of you paying the bank, the bank pays you — using your home as collateral. It’s a financial product specially designed for senior citizens aged 60 and above who own a house but may not have regular income streams.
Here’s how it works: You pledge your home to a bank or housing finance company, and in return, the lender provides you with money — either as a lump sum, a series of monthly payouts or both.
You retain the right to live in your home for as long as you live. There are no EMIs, no monthly payments to worry about. The loan is only repaid when you pass away. At that point, the bank sells the property, recovers the amount it lent you (with interest), and if there’s any money left, it goes to your heirs.
A few benefits of reverse mortgage
For retired individuals who are house-rich but cash-poor, a reverse mortgage can provide much-needed breathing room. It transforms the value locked in your home into usable income, without forcing you to move or downsize. Whether it’s for monthly expenses, medical bills or simply living more comfortably, this loan provides a steady stream of funds — without the pressure of repayment during your lifetime.
What’s more, banks usually offer higher interest rates than a typical home loan.
Another comfort: You don’t lose ownership of your home while you're alive. The emotional security of staying in familiar surroundings can be invaluable, especially for the elderly.
There’s also a tax advantage. Since a reverse mortgage is actually a debt, the interest amount you received is not considered as income under Section 10(43) of the Income Tax Act, 1961. Hence, the payout is not taxable.
But it’s not for everyone
Despite its benefits, a reverse mortgage isn't a one-size-fits-all solution.
For starters, it may not sit well with people who want to leave their home to their children or grandchildren. Once the borrower passes away, the bank has the right to sell the house unless the heirs are able to repay the loan balance. That can lead to difficult decisions for families.
Also, the amount you receive through a reverse mortgage is limited. Lenders usually offer up to 80 per cent of your home’s value, depending on factors like age, property condition and location. If the house isn’t in a high-demand area, the payout might be less than expected.
Furthermore, the loan ticket is also capped. Banks generally don’t give loans above Rs 1-2 crore.
There is also the fact that the interest rates are steep, meaning the final repayment value is significantly higher than the loan amount. As such, reverse mortgage is considered by many to be one of the costliest types of debt you can take from organised lenders. While you don’t make monthly payments, the loan amount grows over time due to accumulating interest. So, the longer you live, the more the loan eats into the value of your home.
Last but not least, there are certain criteria to avail such a mortgage. For starters, your self-owned property should not have any outstanding dues. Secondly, you should be 60 and your spouse should be above 55. Thirdly, the mortgage tenure is usually for 15 years only. So, the later years of your retirement can get tricky, though you can keep residing in the property even after completion of the loan.
Should you consider one?
The answer depends on your needs and priorities. If you don’t have a steady pension or other sources of retirement income and you want to continue living in your home, a reverse mortgage can be an interesting tool. It allows you to enjoy the wealth you’ve built, without selling your home outright.
But if your primary goal is to pass down your home to your children or if you already have sufficient income to meet your needs, you may want to think twice. In the end, a reverse mortgage is not a free lunch. It’s a loan, and an expensive one at that. For some, it may feel like giving up tomorrow’s inheritance for today’s comfort.
As always, it’s best to talk to your family and financial advisor before deciding. Because when it comes to retirement, the biggest asset isn’t your house, it’s your peace of mind.
Also watch: How can retirees maximise income through small savings schemes?
This article was originally published on June 11, 2025.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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