The Government of India in 2018 introduced the Reverse Mortgage Scheme to help senior citizens supplement their regular cash flow using their residential property. This facility can aid elderly citizens who usually lack a regular income or are dependent on their children for financial support cover necessary expenses by mortgaging their property.
Following is a detailed look at what a reverse mortgage loan entails and how it can be utilised.
How Does A Reverse Mortgage Work?
A reverse mortgage is the opposite of a loan against property as a borrower receives a regular stream of pay-out after pledging his/her residential or commercial property. Next, the financial institution determines its monetary value on the basis of its demand, its condition and current property prices. They then disburse this loan amount in the form of a lump sum, committed credit line, a periodical or a combination of all methods.
These periodic payments or reverse EMIs are received by a borrower till the end of a fixed tenor. With each payment received, the house’s equity decreases. Funds from a reverse mortgage loan can be utilised to meet a number of purposes, including –
- Medical emergencies
- Repairs or renovation of the property
- Day-to-day needs
- Repayment of loans availed for the same property
Nonetheless, if you are confident about your ability to pay back the loan amount, you can instead opt for a loan against property. You can utilise the funds to meet any requirement, including to invest or start your own business. Loan against property eligibility criteria are easy to meet, and its interest rates are also lower.
Further, financial institutions bring pre-approved offers that can streamline the loan application process. These offers are available on a number of financial products, including loan against property, home loans, etc. You can check your pre-approved offer in just three seconds by entering a few personal details.
Reverse Mortgage Benefits
- A reverse mortgage loan is an ideal option for those that require regular financial support or whose property is illiquid for some reason.
- A senior citizen can continue to live in his/her mortgaged house after the tenor expires for as long as they live.
- In case one of the spouses passes away, the other can continue living in that house for as long as he/she is alive. In case the other spouse is a co-applicant, he/she will continue enjoying the designated pay-out after the other passes away.
Settlement Of A Reverse Mortgage Loan
Tenor of a reverse mortgage loan is generally 20 years, after which the borrower can still continue to live in the mortgaged property. The borrower has the option to close the loan before the tenor ends without incurring any prepayment charges or penalty. The loan gets settled when:
- The borrower passes away. In this event, his/her spouse can still continue to live in the borrowed house.
- He/she stays away from his/her house for a continuous period of one year.
- The borrower does not pay property taxes or insurance premium for the home.
- The mortgaged property is donated, abandoned, or changes are made to it, which could affect loan’s security.
After both the borrower and his/her spouse passes away, their legal heirs will have the right to redeem the property if they pay the outstanding amount. In case they fail to come forward and redeem the property, the financial institution will sell it and disburse the surplus amount to the heir. Under no circumstances, the heir would be asked to pay a shortfall.
If you are in need of funds to meet emergency requirements, another option you could opt for is a loan against property. A LAP loan gives you access to a high loan amount, which can be utilised for various reasons, including paying for medical expenses, settling bills, daily expenses or a wedding.
Loan against property interest rates are usually very low, and they come with a long tenor, which dilutes their repayment burden. If you are worried about how to repay the debt, check the ways to ensure you do not default on your loan against property before applying.
A reverse mortgage loan, however, is positioned as the more viable financing option for senior citizens.