Surviving out of stable monthly income in old age is exceptionally challenging, especially when one doesn’t have children to support them or anyone else to take care of their expenses. With no liquidity in hands or money in your bank account, covering your expenditures, even the basics like food and clothing can be tremendously difficult.
Thanks to the Reverse mortgage loans, that the senior citizens can support themselves besides through pension. Introduced in the year 2007 in India, it is a scheme designed specifically for the old age population to prevent them from lingering in vain.
Understanding Reverse Mortgage
In Reverse Mortgage loans, rather than you paying the EMIs (as in a loan against the property), the lender provides you with money periodically (reverse EMI) after you have pledged your home. Following the death of the borrowers of the loan, there are two ways the lender can get their money back.
First, the legal heirs of the property can repay the entire sum and keep the house with them. Or, the lender can sell the property, keep the money equivalent to the loan amount and deposit the extra remaining lot to the legal heirs.
How do Reverse Mortgage Works?
To understand the working of reverse mortgages, go through the points given below:
- Generally, the owner of the house applies for the reverse mortgage by submitting the application form, other required documents and completing all other necessary formalities.
- For the application to get approved, the lender first verifies the condition of the property and if it is under the loan amount demanded.
- If everything goes well, the loan amount arrived is disbursed to the owner in the form of monthly instalments for a fixed tenure.
- The reverse mortgage loan interest is added to the loan balance. Generally, if the value of the loan balance exceeds the value of the house, the borrower is not asked to repay the excess amount. The lender bears the loss.
- As the reverse EMIs proceed, the equity of the property decreases.
- Even after availing the loan, you don’t have to worry about losing the house as the owner remains the same.
RBI’s Guidelines for Reverse Mortgage
The Reserve Bank of India has issued some guidelines regarding Reverse mortgages, which are as follows:
- The maximum loan amount that a borrower can avail is 60% of the value of the property.
- The tenure ranges from a minimum of 10 years to a maximum of 15 years (even 20 in some cases).
- The borrower can choose to get payments either monthly, quarterly, annually or as a lump-sum.
- The borrower has to maintain the house for the entire period, and the lender will evaluate its condition every five years.
- There will be no tax charged for the loan amount received.
- The mortgage loan interest rates can be floating as well as fixed.
Reverse Mortgages are an excellent way to attain financial stability for house owners above 60 years of age. It is highly suited for elderlies who have no source of income at all and are facing problems with their pensions as well. By applying for a reverse mortgage, you can utilise your biggest asset- your house to financially support you till the end.