In an endeavor to
provide a cushion to individuals who are in their golden years, the reverse
mortgage loan has been introduced by a number of leading banks in India. It is
a type of mortgage in which retired homeowners can borrow money from banks or
NBFCs against the value of his or her home. No principal or interest is
required as part of this loan until the borrower dies or the property is sold.
How does a reverse mortgage work?
Most people purchase
a home with a regular or forward mortgage that allows them to borrow money from
a lender as a lump sum and then make monthly payments to pay off the debt to steadily
build equity of the new home. Gradually the loan is paid off and individual
acquires complete ownership of the home.
A reverse mortgage
works differently. Instead of you making a payment to the lender, the lender
will make a payment to you as per the total value of your home. It is for you
to decide whether to accept the cash as a single lump sum amount, or as monthly
installments.
During the tenure of
your reverse mortgage, your property will continue be titled by your name i.e.
you will retain ownership of the house. You will be charged interest only on
the payout you receive, and both fixed and variable interest rates options are
available to borrowers. As the loan tenure progresses, your debt increase and your
home equity decreases proportionately.
In case you shift to another
house or pass away, the lender has the authority to sell the home to recover
the money that was reimbursed to you. Once the lender’s cost of lending has
been paid out, any equity left in the home is given over to you or your heirs.
The lender can ask a re-evaluation of the property used in the reverse mortgage
every 5 years. Also note that despite receiving a reverse mortgage, you remain
responsible for paying insurance, property taxes, and maintaining your home. In
case you fail to meet such obligations or if your property falls into poor
condition, your reverse mortgage loan
can become outstanding i.e. the lender may ask you to start paying back the
amount borrowed as part of the reverse mortgage plan.
How
to get a reverse mortgage?
In order to qualify
for a reverse mortgage in India, a few qualifying criteria need to be met and
those are as follows:
1.
The applicant must be an Indian
citizen and aged 60 years or above.
2.
In case of married couples as
co-borrowers, one of the applicants needs to be at least 60 years of age, while
the spouse cannot be less than 55 years.
3.
The applicant for a mortgage loan must
be the owner of the residential property i.e. flat or house located in India.
4.
The applicant must possess a clear
title of the property as proof of ownership of the house being used for the
reverse mortgage.
5.
The property must have a residual life
equal to or greater than 20 years.
6.
The property used for the purpose of a
reverse mortgage needs to be the primary permanent residence of the applicant(s).
7.
Commercial properties are not allowed
to be used for the purpose of a reverse mortgage loan.
Charges
for Availing a Reverse Mortgage Loan
Just like any other loan, the applicant is liable to provide
a range of payments as fees to the loan applicant. The following are some key
costs involved in availing a reverse mortgage loan:
- Origination Fee
- Appraisal Fee
- Assessment Fee
- Documentation Fee and
- Commitment fee in case of an un-drawn loan.
These charges are mentioned to the borrower at the time of
applying for the reverse mortgage loan and may differ from one lender to
another.
Special Considerations
in case borrower outlives the Loan Tenure
The standard tenure of the reverse mortgage loan is 20 years
and in some cases, the borrower may outlive the 20 year loan tenure. During the
loan tenure, the borrower may choose not to service the loan as long as the
property continues to be the primary residential address of the applicant. At
the end of the 20 year tenure, the periodic payments made by the lender will
cease, however, the interest will continue to accrue on the total amount lent
even beyond the 20 year tenure. In case of the applicant’s demise or if the
residence is no longer the primary residence of the applicant, the loan will be
repaid through the sales proceeds of the residential property used for the
reverse mortgage loan.
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