What is Reverse Mortgage?
25 March 2009, Wednesday
Reverse Mortgage in India still at an infancy stage. The reverse mortgage came into existence in the UK during the crash of 1929. Having evolved genetically from the developed countries and mainly the USA, reverse mortgage is a scheme formulated to benefit the senior citizens the most. Although applicable for the younger people also, 'reverse mortgage loan products for senior citizens' is the basic that every bank of financial institution follows.
Reverse mortgage information that will help you in understanding the concept of reverse mortgage loan is listed below.
- Definition Of Reverse Mortgage: Reverse mortgage is a Home Loan product designed for the senior citizens by converting their fixed asset - their home or in banking terms their equity in any house property into an income channel without having to liquidify your equity in case of any requirement.
- The Dealing Parties: Reverse mortgage loan involves two parties, the borrower - the senior citizen and the lender - any bank or housing finance institution.
- Security for the Lender: The borrower pledge their home property to a lender.
- Payment of the Loan to the Borrower: In return of the house property pledged, the borrower gets a lump sum amount or periodic payments spread over the borrower's lifetime that can be utilized by the borrower (senior citizen) as per needs and not for speculative purposes.
- Repayment of Reverse Mortgage Loan: The homeowner and now the borrower will not be required to repay the loan during his lifetime. On his death or leaving the house permanently, the loan along with the accumulated interest is repaid through the sale of the property pledged.
- Home Value Falling Short: In case the accumulated interest and loan amount is larger than the value of the mortgaged property, the mortgage loan is capped at the value of the home equity only and the lender is the party at loss.
- Home Value in Excess: Any excess amount by the sale of the property is duly remitted to the borrower incase of permanent leaving of the house or his heirs in case of the death of the borrower.
- Freeing the property from reverse mortgage: In case you get an additional income and accumulate an amount to repay your loan, you can free your property in midterm and can also apply for re-reverse mortgage if required on the same property.
In the usual mortgage loan, the borrower begins with a large loan and lower equity in his house. In reverse mortgage however, the borrower has a very high equity in his house and a non-recourse loan secured by the home property. In the usual mortgage system, as the regular mortgage payments are made the outstanding loan decreases and the house equity increases. Reverse is the case in reverse mortgage, the loan amount increases with time and the home equity decreases with time.
The reverse mortgage pros and cons must be measured carefully before subscribing to it. Since, the bulk of the savings for the average Indian are typically locked away in a house or other property at the time of retirement, and in case of requirement it cannot be encashed except by selling the home or moving out. This is where reverse mortgage comes as an answer.
Taking the usual mortgage loans in lieu of your home as a security will not be feasible in the age above 50 as the repayment of the loan is not feasible. The Banks And Financial Institutions also won't be of any help in case of no income source. This is where the house property proves as an asset and brings in reverse mortgage that allows you to be the home owner as long as you live. Home ownership is an area most Indians are sensitive about and reverse mortgage entitles you your house throughout your remaining life According to demographic projections, reverse mortgage loan products could be a hit among the metros and also in areas like Kerala, Tamil Nadu, Goa and Chandigarh in India. With hardly any old age social security schemes and financial helplines, reverse mortgages have a potential market. Loans are available in the form of reverse mortgage without any income criteria at an age where normal loans are not available. Reverse mortgage for senior citizens is a social assurance post-retirement.
The major reverse mortgage lenders in India or the banks and financial institutions providing reverse mortgage in India include :
- National Housing Bank (NHB)
- Dewan Housing Finance Limited (DHFL)
- State Bank of India (SBI)
- Punjab National Bank (PNB)
- Indian Bank
- Central Bank of India
Reverse mortgage is a way of getting the benefits of your home equity by retaining the home ownership and also without having to make any repayments. The senior citizens in India will definitely find reverse mortgage a solution for their financial needs after retirement and help them in regaining their feeling of independence.