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 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.
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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.
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
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:
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.
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.
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