Reverse Mortgage

What is Reverse Mortgage?

Reverse mortgage your home for nex 15 years after retirement and get tax free monthly cash flow from banks/ Housing Finance Companies to cover regular expenses. This is the opposite of taking a home loan at the time of purchase or construction of home. You can live in the house for life. You need not repay the loan amount the legal heir may get the house back after paying the outstanding loan amount. How to build it: To start with, buy home through home loan for 15/20 years during your service and start disciplined retirement planning. Start with a small house, say ` 10 lakhs, instead of waiting. You can buy a bigger house after 5 years for self use, in case the corpus needs to be increased and the standard of living is improved. There is no income tax liability as there are no rentals. Rather, you save tax on interest paid amount. The capital gains on sale of house are not taxable if invested in another house purchase. Over time, real estate has given inflation adjusted returns. Hence, it makes sense to buy a house taking

a loan instead of adding in fixed deposit for buying a house later. This may have to change after the DTC kicks in. A major game changer for life insurance is that the tax deduction limit will get reduced from the present ` 1 lakh a year to only ` 50,000 a year under the DTC. That’s not all. This ` 50,000 limit would also include the amount paid for tuition fees of children as well as medical insurance. Hence, there won’t be too much head room left for a big premium paid on an insurance policy. There are other things to keep in mind too. Insurance agents like to lure buyers by saying they can withdraw from their Ulips after a few years. This lock-in period used to be three years but the Insurance Regulatory and Development Authority has extended it to five years. Nonetheless, it is a widely used ploy to sell Ulips because partial withdrawals are tax-free. Right now, any income from insurance is tax-free except the premature surrender of a pension plan or a Ulip before five years. But under the DTC, withdrawals from Ulips will attract capital gains tax on the basis of the holding tenure. If you still want to buy an insurance policy to save tax, make sure that the life cover it offers is big enough. This would be possible if you take long-term plans (at least 20 years). Your agent might try to dissuade you from opting for a higher risk cover in your Ulip. He would point out that a higher deduction for mortality charges would reduce the funds available for investment. Don’t let that make you opt for a plan that

might lose all tax benefits two years from now. For investors who are comfortable taking

risks, equity-linked saving schemes are a better way to save tax. These funds have given high returns in recent years and have a lock-in of only three years, which is the shortest for any Section 80C option. But being equity- oriented funds, they are subject to market risks and one

should enter only if he can stomach the ups and downs. For those with a lower risk appetite,

the New Pension Scheme (NPS) is a great way to save tax. NPS investors have the choice

of investing in funds managed by six mutual fund houses. The NPS allows up to 50% equity

exposure and the charges are negligible compared to the terribly high costs of investing in a Ulip or a unit-linked pension plan from an insurance company. But NPS is not as liquid as ELSS funds and investments that get tax deduction cannot be withdrawn before retirement.