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Reverse Mortgage Scheme

Updated: Oct 4, 2023

Reverse mortgage is a loan which provides an additional source of income for senior citizens who own a residential property.it enables them to receive a regular stream of income from a bank or a financial institution against the mortgage of their home. Every working individual wants to spend their retirement life with dignity. If you are also about to reach your retirement or you are in the retirement period, you may be looking for a way to fund your lifestyle without depending on anyone. Some cases, people who accumulated corpus for their retirement not provide sufficient regular income due to the increasing cost of living, medical emergencies, etc. One of the effective ways to earn a regular income for pensioners is a Reverse Mortgage. This plan was introduced in India in the year 2007 but till today there are only a few who have availed this facility. In a reverse mortgage, instead of the homeowner pays EMIs to the lender, the lender makes payments to the homeowner in installments.

How does it work?

When the home is pledged, its monetary value is arrived at by the bank, on the basis of the demand for the property, current property prices, and the condition of the house. The bank then disburses a loan amount to the borrower in the form of periodic payments, after considering a margin for interest costs and property price fluctuations. In this case, the lender makes periodic payments to the borrower so that he can meet his monthly expenses. The property should be self-occupied and primary residence of the borrower. The loan is to be repaid if the borrower dies, sells the property or moves out permanently.

Reverse mortgage is a wonderful tool to accomplish our retirement goal. It can help us with more cash during our retirement. It is an ideal option for those people who require regular income from illiquid property, there are no repayments involved. The settlement of loan will take place when both husband and wife die, they continue to reside in the property and receive a periodic payment on it. They use this cash to supplement income, pay health care expenses, retire debt or finance home improvements.

Eligibility for opting this scheme

A reverse mortgage is available to anybody over the age of 60. In case a couple wishes to opt for one, the age of the spouse should be more than 58 years. The property should be self-occupied and the primary residence of the borrower. The property must have been in existence for at least 20 years. Properties that are let out or being used for commercial uses are not eligible. One can avail only 60% of the property price as a reverse mortgage. The minimum duration of this loan is 10 years and the maximum is 15 to 20 years, again depending on the bank. The maximum monthly payment one can receive from a reverse mortgage is Rs. 50,000.

Reverse Mortgage loans are not very popular in our country 

In India, there is an emotional attachment towards family, they would like the house in the memory of their parents. All these cultural reasons and emotional attachment towards the family make it difficult for the couples to go for a reverse mortgage. Also there are other reasons such as  lack of publicity, limitations on the maximum mortgage loan amount, the property should be used only for self-occupation, there is no option to increase the payment amount according to inflation, and need to pay various charges such as legal fee, loan processing fee, charges relating to property survey, valuation, title examination, stamp duty and registration etc.

Conclusion

A reverse mortgage is a good option for retired people who have a shortage of funds during their retirement period. But most of the senior citizens avoid this tool as they get an emotional attachment with the house they live in and they want to leave the property for their heirs. But in some situations like the unprecedented pandemic continues to hit the liquidity in the market. Currently, people are not able to sell their property because there are no buyers in market due to liquidity issues, it is a good option to opt for reverse mortgage loan. But it is very hard to survive with only this income source in a metropolitan cities like Bengaluru, Hyderbad, Delhi etc.

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