When we think about our lives after retirement, we start wondering about all the problems we’ll be having at that time, problems like lack of regular income and absence of a proper support network. These are serious worries, and not worries out of thin air. Aged citizens routinely have to worry about the rising cost of living, cost of healthcare and much more. More or less.
Most aged citizens own a property or two. However, since these are illiquid in nature, one cannot convert these into instant cash or a regular income stream.
Here comes Reverse Mortgage to the rescue. The concept of Reverse Mortgage was introduced by the Indian government as early as 2007.
What is Reverse Mortgage?
Reverse Mortgage, just like the name suggests, is the total opposite of a normal mortgage. In a reverse mortgage, a person owning a home or property can mortgage it and get a regular amount from the bank. The bank or financial institution concerned has the legal right to sell off the property after the customer’s death. The remaining amount is given back to the applicant’s legal heirs.
Its use and situation in India
Studies have determined that by 2050, 20% of Indian population shall be senior citizens. To help them out in their late age when they can be beset with many financial problems, the government and private lenders offer the service of reverse mortgage. It is for giving candidates healthcare benefits and social security. As for the lenders of this service, it gives them a lot of opportunities to promote the service even more.
Why should one go for reverse mortgage in the first place?
One of the biggest benefits is that it gives senior citizens social security, financial security, and this mental peace. Someone with a reverse mortgage shall be getting timely money each month from the concerned bank. Thus, senior citizens can make budgets and live their lives comfortably instead of depending on anyone. Besides, they don’t need to move out of their mortgaged house either. They can stay at their own homes and enjoy the fruits of this service.
So a reverse mortgage is perfect?
Not really. There are some problems, but it has more to do with the Indian traditional viewpoint. For example, parents may not want to give away their property even after their death to the lender. Instead, they would want it to go to their legal heirs or children.
Another problem is that of the huge initial costs of reverse mortgage. These expenses form a part of the initial loan and thus accrue interest.
Loan amount and interest rates can change as well, since these depend on the real estate industry.
What is the Reverse Mortgage Loan eligibility criteria?
- One needs to be over 60 years of age. If you are applying together with your spouse, the age of the spouse needs to be more than 58.
- One needs to have a fully owned property or home. If the applicants are a couple, at least one of them needs to own a property.
- The property should have existed for the last 20 years at least
- Properties that are used for commercial use and which are let out cannot be used for reverse mortgage
Documents you’ll need for getting a Reverse Mortgage
- Address proof
- ID proof
- ID card of employer
- Property papers
- Last one year’s loan account statement
- Last 6 month’s account statement of all bank accounts
Main points of a Reverse Mortgage loan
- The maximum loan given is Rs. 1 crore
- The minimum tenure is 10 years. The maximum tenure depends on your lender.
- One can pick monthly, quarterly, yearly, or lump sum payments.
- The property concerned will be inspected and reevaluated by the lender every 5 years
- The reverse mortgage loan rates depend on your lender, and on the type of loan chosen.
- The processing fee depends on your lender.
- You can prepay the loan at any time during the loan’s term without worrying about a prepayment fee.
Top benefits of a reverse mortgage loan
- The income you get from the lender will be tax-free.
- If you repair or renew your home with the money, the amount spent shall be deductible from income tax.
- Loan’s repayment at term’s end is not considered to be tax-deductible.
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