Adhil Shetty- CEO -BankBazaar.com | Source: MoneyControl.com
Mohan and his wife Manjula both retired lived in their own home in Hyderabad city. Over the years while the couple were working and was hoping that their savings would be sufficient for them in their sunlight years. Now with inflation rising steadily in the last few years, the couple is faced with a dilemma of a monthly income for their day to day expenses as their pension was insufficient. Mohan and Manjula approached a banker who suggested them to look at reverse mortgage loan which can bring them monthly income enough to take care of their day to day expenses. Though initially skeptical, they understood later there is no harm in taking a reverse mortgage and it is a flexible loan for seniors.
Let’s have a look at the intrinsic advantages of reverse mortgage loans.
Working Mechanism of Reverse Mortgage Loan:
A reverse mortgage as the name suggests is the exact opposite of a traditional home loan. In a reverse mortgage scheme, a senior citizen above the age of 60 years living in a self occupied home can receive a regular income from a bank against mortgaging of the home. The borrower can continue to live in the home till his lifetime and continue receiving a periodic monthly payment, just like a salary or pension.
In case of the death of the borrower seeking a reverse mortgage loan, the spouse can continue living in the home and receive the amount. They can close the loan at any tme by settling the amount paid to them with interest, or their heirs can either repay the loan or allow the bank to dispose of the property and recover their dues.
When a home is pledged with the bank, the bank arrive a financial value of the property keeping in mind the market value of the location. Bank then disburses loans up to 40-90% of the market value of the property with a maximum cap of Rs. 1 Crore. The loan amount may be used by the senior citizen borrower for varied purposes like up-gradation or renovation of residential property, medical emergencies etc or even opt for a fixed monthly income. With the bank paying out monthly installment to the borrower the equity or the individual’s interest in the house decreases.
Benefits of Reverse Mortgage Loans: Reverse mortgage loans offer a number of benefits for senior citizens and are slowly getting popular with a number of retirees. Some of the most significant benefits of opting for a reverse mortgage loan include:
• Simple Eligibility Criteria: Banks allow reverse mortgage loan to house owners above the age of 60 years. In case of a co-applicant the younger borrower cannot be less than 55. Reverse mortgage loan is permissible to only those individuals who are owners of a self-acquired and self-occupied residential property. The borrowers must be residing in the property which is being mortgaged.
• Regular Income for the Elderly: Reverse mortgage loan allows elderly citizen a chance to get a monthly income by mortgaging their house or residential property. This is much beneficial for those who missed the bus while doing efficient planning for their retirement as the loan offers a steady monthly income for the elderly, helping them to live without depending anyone.
• Flexible Payment Options: The borrower has the option of seeking a fixed monthly income, or quarterly or annual lump sum payment for the reverse mortgage loan depending on the financial overview of the borrower.
• No Tax Obligations: Since the money received through a reverse mortgage loan is considered to be a loan and not any income, it is free from any tax liability making it an attractive option for the elderly.
• Easy Prepayment Facility: Reverse mortgage loans can be prepaid along with interest anytime during the loan tenure without any extra charges.
• Easy Loan Settlement Process: The reverse mortgage loan become due either when the tenure period ends of the last surviving borrower dies. In case of end of tenure, the banks allow the borrower to repay the loan and get back the mortgaged property. In case of death of the loan borrowers, the kin or legal heirs of the property are asked to settle the loan. If they are unable to settle the loan or are not interested in settling the loan, the bank recovers its dues by disposing off the property in an open auction. If the money including principal and interest is less than the mortgaged loan due to fall in property prices, the bank absorbs the loss. However if the money received from the sale is higher than principal and interest amount of the loan, the excess funds are distributed to the legal heirs of the borrowers.
Source : http://goo.gl/kMGhqo