Reverse Mortgage
Reverse mortgage is a kind of loan provided by a bank or financial institution to help Senior Citizens, who are need of monthly income to meet their daily needs. Apart from issuing lump sum loan amount, this loan has an option to receive quarterly or monthly payments from the bank against the mortgage of the property. Some banks issue only monthly payouts for this type of loan. The monthly payout amount varies on the value of the property.
In this financial setup the bank or the lender will take hold of the asset from the mortgagor (borrower). They will estimate the total worth of the asset and pays the mortgagor a fixed sum every month. If the mortgagor needs the property back, they can pay the money back to bank. Usually banks provides 50%-60% of total worth as loan in reverse mortgage.
Example
Mr.Raghuram, aged 65 got retired from a private organisation. He spent almost all of his savings for his 2 daughters education and marriage. Now he doesn’t have any monthly income. Raghuram and his wife do not want to depend on anybody. He is living in his own house with his wife.
To meet his monthly cash needs, Mr. Raghuram can opt for a Reverse Mortgage through a bank or financial institution. Since his house is valued at around 100 lakhs, he can get about Rs. 50,000/- monthly income by using this facility, which is more than what he need in a month.
Eligibility
Unlike a normal loan, certain things must be noted in reverse mortgage. This loan is meant only for senior citizens who possess some assets like house, plantation, land etc. Usually most of the nationalized banks in India provide this financial aid. The major eligibility criterions in India are:
- The applicant must be at least 60 years old. If the there is a co applicant for this loan (spouse) he/she must be 58 years or more.
- The owner must not have any liabilities over the property. The title deed should be clean.
- The property must be at least 20 years old and it must be the permanent residence of the owner.
Highlights of Reverse Mortgage
- Suppose any of the loan bearer (applicant or spouse) is ceased within the loan tenure, it doesn’t affect the monthly income.
- If the loan period it outlived, still the borrower can stay in the residence. Only after the death of both applicants, shall the settlement process starts
- The loan can be paid in advance even before the time period gets exhausted.
Is there any disadvantages?
Thought it seems very cool, there are some disadvantageous
- Paperwork’s works are the worst part of this operation. Reverse mortgage aims the senior citizen, so tedious documentation process might be a problem for old people
- The monthly payment is fixed one. It doesn’t change over time. Means a person who attained this facility 5 years before might get a low payout compared to one at present due to inflation. (assuming both has same value asset).
Lack of Awareness
20% of total population in India are senior citizens. So this could be the key financial tool that can be used by old age people to generate an income without working. But still only a small percent of people have joined this scheme, which is believed to be lack of proper knowledge about this setup.
Banks in India Providing Reverse Mortgage
- Punjab National Bank
- Union Bank of India
- National Housing Bank
- IDBI Bank
- Indian Bank
- Canara Bank
- State Bank of Mysore
Recommended Read : How Senior Citizens can benefit from Reverse Mortage
