Updated: Oct 4, 2020
WHAT IS A REVERSE MORTGAGE LOAN?
A reverse mortgage loan is a financial tool which enables senior citizens/elderly home owners to benefit from the equity they have in their homes without selling and without making payment on their loan. It is a loan secured on primary residence of a senior citizen, which never has to be paid back as long as:
The borrower maintains the home as primary residence.
The borrower pays the property taxes and insurance.
The home is maintained in a good condition to preserve the value.
The reverse mortgage loan does not require monthly EMI payment to the lender. It allows the borrowers to defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added back to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower's estate) is generally not required to repay any additional loan balance in excess of the value of the home.
Objective of Reverse Mortgage Loan
The primary objective is to facilitate monthly cash flows in the hands elderly home owners, who don’t have any other sources of income. The financial tool reduces dependency of senior citizens on their children/relatives in their ripe age when the sources of income are restricted. The availability of monthly cash flows ensures that borrowers are able to carry on with their basic lifestyle.
Applicable to senior citizen above 60 years of age.
Applicable to the owners of self-occupied & acquired residential property
Clear title indicating ownership of the prospective borrower is mandatory.
Not applicable for ancestral property.
Eligible Amount of Loan
Usually varies from 40 %-60% of the current market value of the property
As a thumb rule the amount of loan is directly linked to the age of borrower. Higher the age higher the loan amount.
Usually the max capping of loan amount under this product is 1 crore
Timely reassessment of the property value is done at regular intervals to check the valuation of the property and loan amount is reset accordingly.
Max Loan tenor is usually fixed at 15 years.
Residual age of the property should be >=20 years
o Loan Amount is disbursed as periodic-monthly, quarterly, half yearly, annual instalments to the borrower.
o Max Monthly payment to borrower is usually fixed at Rs 50,000/- per month.
Security to Loan
o Registered Mortgage of the property
o Loan shall be due and payable only when last surviving borrower dies, sells the home or permanently moves out.
o Settlement of loan along with accumulated interest to be met by proceeds received out of sale of residential property
o Borrower and/or their legal heirs have the option to settle the loan without sale of property.
o No prepayment penalty charges would be applicable on such payments