Direct Benefit For Senior Citizens On Loan Against Property Through Reverse Mortgage

In India, the majority of senior citizens lives a quiet life without any monetary concerns. With their children being independent, they have little to no worries. However, with age, medical emergencies also become a crucial factor thereby calling for monetary requirements. Availing funds for such situations may be hard for senior citizens. For addressing this situation, banks and NBFCs are providing Reverse Mortgage to senior citizens. Introduced back in 2007, this type of Mortgage Loan is slowly gaining popularity in India.

 

The standard loan amount that Banks and NBFCs provide with Reverse Mortgage ranges from Rs.5 Lakh to Rs.1 Crore.

What is a Reverse Mortgage?

Reverse Mortgage is a facility provided to senior citizens that enables him/her to receive monthly income from the bank by mortgaging the house. The lender values the house depending on current market conditions; they break down the same into EMIs and provide it to the borrower.

The borrower continues to live in the house and as well as continues to receive the reverse EMIs; he/she can use it for any reason be it Debt Consolidation through Loan Against Property , a wedding, or others.

When will the Reverse Mortgage be repaid?  

The Reverse Mortgage will be repaid if the borrower chooses to sell the house or if the last surviving borrower expires. The lender will provide an option to the heir for the repayment of the loan. If the heir is unable to settle it, the bank will take the house and auction it off.

The bank or NBFC will bear any losses from the auctioning of the house; this may happen if the original estimation is higher than the current market value of the house. On the other hand, if the amount recovered is higher than the Reverse Mortgage loan, then the surplus will be awarded to the heir.      

What are the eligibility criteria for a Reverse Mortgage?

For availing a Reverse Mortgage, the borrower needs to have a house owned by him/her with proper documentation. The house should stand as the primary residence of the borrower; further, it should be free from a loan against property.

The borrower should be above the age of 60 years. The wife of the borrower should be above 58 years if she stands as co-applicant.

Guidelines of a Reverse Mortgage loan set forth by the Reserve Bank of India

Banks and NBFCs provide an average tenure of Reverse Mortgage ranging from 10 to 20 years. They will provide around 60% amount of the total valuation of the house.

The lender will further undertake a property revaluation every 5 years. If the valuation increases, then the borrower will be entitled to receive a lump-sum amount. The Mortgage Loan Interest Rate is either fixed or floating; if floating, the rates of interest provided after revaluation will conform to the current market conditions.

The borrower will not have to pay any tax on the amount received as it is a loan. But, he/she will have to pay capital gains tax if the lender evicts the borrower to recover the loan amount.

A borrower will get an option to receive the Reverse Mortgage amount monthly, quarterly, annually, or as a one-time payment.

Foreclosure of the loan     

Foreclosure may arise for any of the reasons mentioned below:

1. If the borrower declares bankruptcy.
2. The borrower abandons or donates the property.
3. If the borrower does not stay in the house for more than 1 year.
4. The borrower fails to insure the house or does not pay the property tax.
5. If the borrower rents out a part of or the entire house.
6. The government wants to condemn or acquire the house for certain reasons.  

The above included in short, are the intricacies of a Reverse Mortgage provided by banks and NBFCs.

NBFCs like Bajaj Finserv provide pre-approved offers with their mortgage loan. With pre-approved loans, the processing time lessens and the customers receive more ease.

Tags: Reverse mortgage

Category: Housing