Reverse Mortgage Loan

What is a Reverse Mortgage Loan?

Simply put, a reverse mortgage is the opposite of the standard home loan. A reverse mortgage enables a senior citizen to receive a regular stream of income from a lender against the mortgage of his home. The borrower, i.e., the one pledging the property, continues to reside in the mortgaged property till the end of his life and receives a periodic payment on it.
A reverse mortgage loan is an ideal option for senior citizens who require a regular income.

How does a reverse mortgage work?

When the home is pledged, the bank estimates its monetary value based on current market prices, demand for the property and condition of the house. Once its monetary value has been decided, bearing in mind the margin for interest costs and price fluctuations, the bank disburses a loan amount to the borrower in the form of periodic payments. The periodic payments (also known as reverse EMI) are received by the borrower over a stipulated loan tenure formally agreed upon.

General features of reverse mortgage loan

There are certain guidelines laid down by RBI to regulate lenders offering the reverse mortgage.

•    Maximum loan amount would be up to 60% of the value of the property
•    Tenure: Minimum 10 years and Maximum 15 years. Some lenders also offer tenures up to 20 years
•    Option of monthly, quarterly, annual or lump sum loan payment
•    The property mortgaged should be reevaluated by the lender once every 5 years. If at such a time, the value of property is found to be increased, borrowers have the option of increasing the quantum of the loan
•    The amount received through reverse mortgage is a loan, hence it will not attract any tax
•    Interest rates: Reverse mortgage interest rates could be either fixed or floating. The rate is determined by prevailing market interest rates
Eligibility Criteria    
•    House owners above the age of 60 years are eligible. If you are adding your spouse as a co-applicant, then she should not be below 55 years of age
•    Should be the owner of the residential property (house or flat), located in India
•    The property should be free of any encumbrances and the titles should be clear, indicating house ownership
•    Property pledged should be the permanent primary residence of the individuals
Repayment of Loan
The loan shall become due under the following circumstances:
•    When the last surviving borrower dies
•    When the last surviving borrower wants to sell the home
•    When the last surviving borrower permanently moves out of the home

In such circumstances, the loan would become due for recovery. The settlement of loan, along with accrued interest, are usually met be the proceeds received from the sale of the residential property.