In this article, we will discuss the reverse mortgage loan. If you are above 60 years of age, you must be retired from your job. Or someone in your family is getting retired or going to retire soon then this article will be important for you.
In this article, we will discuss the below points about the reverse mortgage.
- What is a reverse mortgage?
- Criteria for opting the reverse mortgage.
- Features of the reverse mortgage loan in India.
- Should you opt for a reverse mortgage loan?
What is a reverse mortgage loan?
It is obvious that at a later age there are higher medical expenses and income will be low. In such a scenario, there is one concept that can help you to survive under such a financial crisis.
Not only medical expenses, but it also becomes difficult for the person to even manage monthly expenses with no regular income. In this case, most of the senior citizens become dependent on their children to take care of them and their financial needs.
This is the reason the person must do financial planning at an early age to meet the monthly expenses after retirement.
The average life expectancy in India is going up from 65.8 in 2012 to 68.56 in 2016.
With the increasing life expectancy, the medical expenses will surely be going to go up. The retirement age in India is set to 60 years. This means the average person in India has to have a retirement corpus that lasts for at least 10 to 15 years. So it is advisable not to get retire before at least 60 years of age.
Now if you have any real estate in your name there is good news for you. There is a concept called reverse mortgage wherein the bank will give you a monthly fix amount against your property. This is called a reverse mortgage loan.
This concept is the reverse of the home mortgage loan. That’s the reason it is called reversed mortgage loan.
Home Loan vs Reverse Mortgage Loan
Let’s understand the key differences between home loans and reverse mortgage loans.
|Home Loan||Reverse Mortgage Loan|
|You become the owner of the property||Bank becomes the owner of the property|
|You pay EMI||Bank will give you a fixed amount every month|
|You own the property||You lose the property|
In reverse mortgage loans, there are various types of payment options you will get. It could be monthly, quarterly, yearly or lumpsum one-time payment.
What will happen after the death of the person who has taken reverse mortgage loan?
There are two options after the death of the person who has taken reverse mortgage loans.
- The legal heirs can pay the loan outstanding amount to the bank and the bank will transfer the property to them.
- The bank can auction the property to set off the outstanding loan. If the selling price is higher than the outstanding loan amount then the excess amount will be transferred to the legal heir.
Features of Reverse Mortgage Loan
- The bank will grant the loan in case of, the person is not able to meet his monthly expenses.
- There is any medical emergency
- The person wants to upgrade, renovate the house where he/she is staying.
- The bank will not grant the loan if the purpose of the loan is doing business, speculation, trading, gambling, etc.
- The applicant’s age must be more than 60 years.
- In the case of the joint applicants, the spouse’s age must be more than 55 years.
- The house must be self-acquired and self-occupied.
- The applicant cannot donate or transfer the property to anyone until the loan is pending.
- There should not be any debt or loan running on the property.
- All the municipal taxes must be cleared.
- At the time of application, the residual age of the property must be at least 20 years.
- Loan tenure can be a minimum of 10 years, 15 years and a maximum of 20 years.
- The maximum loan amount can be 60% of the property value at the time of application.
- Bank will do property revaluation at the interval of 5 years.
- Interest rates are usually 2% higher than the prevailing home loan interest rates.
- Most of the bank has set the maximum monthly disbursement amount to ₹ 50000.
- Lump-sum disbursement can only be approved in the case of medical treatment of self or spouse. The maximum limit is ₹ 15 lakhs.
- Prepayment of this loan is allowed free of cost.
- Banks can forcefully close the loan if they found that you are not staying at the property for more than 1 year. The same applies to the municipal taxes, they must be cleared on a regular basis.
Benefits of Reverse Mortgage Loan
- It will help you to get a regular income after retirement.
- No dependency on the child or other family members for regular expenses
- The loan amount you receive on a regular basis is tax-free. Since it is a loan so actually it’s not an income.
- The applicant can stay in the property after the end of the loan tenure.
- Suitable for the person who does not have any other source of regular income after retirement.
List of the reverse mortgage providers in India
- State bank of India
- Axis Bank
- Bank of Baroda
- ICICI Bank
- HDFC Bank
- Corporation Bank
- Canara Bank
- Kotak Mahindra Bank
- LIC Housing Finance
- Punjab National Bank
Almost all the banks are offering the loan against property for senior citizens. check the prevailing interest rates and don’t forget to check the terms and conditions of the loan. There are many hidden charges/clauses in the agreement which you will not come to know at first sight.
Should a person opt for the reverse mortgage loan in India?
Well, there are many factors that will decide whether one should go for this loan or not. After all, it is one kind of loan only, so you will have to pay the interest on the amount you will get at regular intervals.
It is advisable that a person should not borrow money against the property as it is a liquidation of the property. The applicant will also lose the benefit of the rise in the property value as the ownership of the property will be of the bank after the end of the loan tenure.
The children may also get dissatisfied with this decision taken by their parents in India. Property is considered a big asset and is suppose to be pass on to the next generation.
It is advisable not to opt for this loan due to two main reasons.
- You lose the property at the end
- You lose the property valuation benefit
If you don’t have any resources to meet your monthly expenses, then as a last resort you should opt for a reverse mortgage loan.