Jun 2, 2018

Understanding Reverse Mortgage Loan for Senior Citizens

Reverse Mortgage for Senior Citizens

What kind of thing is this Reverse Mortgage?

Reverse mortgage is a kind of loan designed by Banks or Financial Institutions especially for Senior Citizens who are in need of monthly income to meet their daily needs. This loan has an option to receive quarterly or monthly payments apart from issuing lump sum loan amount against the mortgage of the property. But some Banks issue only monthly pay outs which again varies depending on value of property.

Bank or Financial Institution will estimate total worth of asset and pays the mortgagor a fixed sum every month. In this financial setup the Bank or the Lender will take hold of the asset from the mortgagor (borrower). If the mortgagor needs the property back, they are allowed to pay the money back to Bank. Usually Banks provides 50%-60% Loan against property value in reverse mortgage.

Eligibility Criteria:
Contrasting regular Loans, certain things must be noted in Reverse Mortgage. This Loan is meant only for Senior Citizens who possess assets like House, Plantation, Land, etc. Usually most of the nationalized banks in India provide this financial aid. 

The major eligibility conditions in India are:

The applicant must be at least 60 years old. If the there is a co applicant for this loan (spouse) he/she must be 58 years or more.

The property must be at least 20 years old and it must be the permanent residence of the owner.
The owner must not have any liabilities over the property. The title deeds should be clean.

Highlights of Reverse Mortgage:
Suppose any of the Loan Borrower (applicant or spouse) is ceased within the loan tenure, it doesn’t affect the monthly income.

If the loan period it outlived, still the borrower can stay in the residence. Only after the death of both applicants, shall the settlement process starts. The Reverse Mortgage Loan can be repaid in advance.

Disbursement and loan tenure:
The maximum loan amount is Rs.1 crore along with interest. Lump sum pay-out is permitted in the event the borrower or his spouse has to undergo medical treatment. The maximum limit on that is Rs.15 lakhs.

Repayment:
There is no compulsion regarding the repayment time; a borrower can redeem it even before the agreed time duration. Also, one need not repay the mortgage as long as one lives in his/her house. Payment is due only when the person passes away, sells or moves out of his/her residential property. In the case of borrower's death, the bank holds all rights to sell the property and recover the loan. And, if the proceeds exceed the due amount, then the bank is obliged to return the same to the legal heirs.

Is there any disadvantage?
Though it seems very cool, there are some disadvantages:

Paperwork is the worst part of this procedure. Reverse mortgage aims the senior citizen, so tedious documentation process might be a problem for aged ones.

The monthly payment is fixed one. It doesn’t change over time. Means a person who attained this facility 5 years before might get a low pay out compared to one at present due to inflation. (Assuming both has same value asset).

Lack of Awareness:
More than 20% of total population in India are of Senior Citizens. So this could be the significant financial tool that can be used by old age people to generate an income without working. But still only a lesser percent of people have joined this scheme, which is believed to be lack of proper knowledge about this structure.

Below are some of the Banks in India Providing Reverse Mortgage:
LIC Housing Finance
State Bank of India
Bank of Baroda
Andhra Bank
Indian Bank
HDFC Bank
ICICI Bank 
Axis Bank
DHFL
PNB. 

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