alexa

Search in Indianmoney's WealthPedia

Home Articles Reverse Mortgage

Reverse Mortgage

IndianMoney.com Research Team | Posted On Tuesday, February 19,2019, 06:02 PM

5.0 / 5 based on 1 User Reviews

Reverse Mortgage

 

 

What Is a Reverse Mortgage?

The reverse mortgage is an exact opposite of home loan. You avail a home loan from the bank and repay principal and interest, within a fixed time period called tenure.

In reverse mortgage you borrow against the value of house or property. You mortgage the house to the bank (pledge the house) and the bank makes payments in lump sum or periodic installments.

You and spouse can live in the house and on death of the last survivor (you or spouse), the loan and interest must be paid back. The onus is on legal heirs to settle the loan and claim the inheritance.

Reverse Mortgage In India

Reverse Mortgage loan was introduced in India in the year 2007. Reverse Mortgage Loans RML, are offered to those home owners who are aged above 60 years. You must reside on the property and the house must be free from encumbrances.

You must continue to reside on the property after reverse mortgage. Reverse Mortgage is not popular in India, as Indians traditionally feel it’s good to transfer debt free assets in the form of properties to heirs and not debt attached properties.

Want to know more on Reverse Mortgage? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Reverse Mortgage

How Does A Reverse Mortgage Work?

You must be at least 60 years to apply for reverse mortgage. Reverse Mortgage are offered to co-applicants as well. In this case, at least one person must be above 60 years and the other, at least 55 years.

Reverse mortgage loans work in exactly the opposite direction to which a normal mortgage loan works. This product is designed specifically for senior citizens and only they can avail it, as they have assets and not cash flow.

Reverse mortgage loans allow individuals pledge their residential property with a lender, to receive a lump sum or periodic payments to cover living expenses. A maximum of 60% of the property’s market value is sanctioned as reverse mortgage loan, for a maximum of 20 years.

The sum received as reverse mortgage is a form of debt and is non taxable. The borrowers need not repay the debt; the bank would liquidate the pledged residential property to recover the dues, when the borrower dies or moves out of the house. However, borrower’s legal heirs can repay the loan to gain the legal rights of the property.

SEE ALSO:Why Indians Should Consider Reverse Mortgage Seriously?

Types Of Reverse Mortgages

There are two types of mortgage loans offered in India:

1) Normal Reverse Mortgage: Under a normal reverse mortgage loan, the residential property of the borrower is pledged to the lender and the lender directly pays out either a lump sum amount or makes periodic payments directly to the house owner, who also happens to be the borrower, without any intermediaries.  

2) Reverse Mortgage Loan Enabled Annuity (RMLEA): Reverse mortgage loan enabled annuity product is an extension of reverse mortgage. Under this, the bank pays one time lump sum to a life insurer of the borrower’s choice, to avail immediate annuity plan.

The life insurer then makes monthly payments across the lifetime of the borrowers. This regular monthly payment is called annuity.

The money received by annuity borrowers is more than what normal reverse mortgage borrowers receive.  This is because the insurer receives a lump sum from the bank, which they invest elsewhere, to earn returns which enables them pay borrowers more than what normal reverse mortgage offers.

SEE ALSO: Mortgage Loan Calculator

Pros And Cons Of Reserve Mortgage

Pros of reserve mortgage

  • Reverse Mortgage provides sufficient amount of money to take care of living expenses.
  • Reverse Mortgage enables you to be financially independent even in retired life.
  • Reverse Mortgage offers flexible payment options; lump sum amount or periodic payments as per requirements.
  • You can continue to live in the house that is pledged under reverse mortgage loan.
  • Availing reverse mortgage with annuity feature offers higher income.

Cons of reverse mortgage

  • Society pressure: It is a traditional practice in India, to transfer debt free assets to the next generation. Owing to society pressure, many citizens don’t opt for reverse mortgage loan, even though there is need for it.
  • Higher Interest Rates: Lenders usually charge 2-3% higher interest rate, when compared to that of simple mortgage.
  • Property could be lost: Periodic evaluation of the pledged property is done. If the borrower dies or decides to moves out of the pledged property, then the lender may decide to sell the property for a lower value to recover the dues.

SEE ALSO:Why reverse mortgage is not popular in India

Reverse Mortgage Lenders

As mentioned, Reverse Mortgage is not a popular financial product in India and therefore there are not many lenders who offer it. Below mentioned lenders are offering reverse mortgage loans in India:

  • State Bank Of India
  • Bank of Baroda
  • LIC Housing Finance
  • National Housing Bank (NHB)
  • Punjab National Bank (PNB)
  • Corporation Bank
  • Central Bank of India
  • Canara Bank
  • Dewan Housing Developing Limited (DHFL)
  • Andhra Bank

How Much Can You Borrow?

As mentioned earlier, you can avail up to 60% of the pledged property’s market value as reverse mortgage loan. The maximum tenure of a reverse mortgage loan is 20 years.

How To Avoid Reverse Mortgage Scam?

You must first evaluate state of finances, before opting to avail a reverse mortgage loan.

Understand and read the terms and conditions carefully, before signing up for Reverse Mortagage. Get clarification on anything you don’t understand. Do not blindly sign the term sheet based on advice from lender/agent. 

You May Also Watch:

Iframe Content

Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.

Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.

Be Wise, Get Rich.

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
CIBIL Meter
Get It now!
Attention!

This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.