In 2007, the Government on India introduced a reverse mortgage loan (RML) scheme for the “asset-rich-but-cash-poor” senior citizens. However, the scheme met with a lukewarm response from the targeted segment. Mainly due to a lack of awareness and emotional attachment to their property. And most importantly, because many failed to understand the RML scheme.
Let’s change that! Here’s everything you need to know about reverse mortgage loans.
What Is a Reverse Mortgage Loan?
A reverse mortgage home loan is a type of credit scheme specifically designed for senior citizens. The borrower hands over his property rights to the lender in exchange for a regular income, to supplement his retirement income.
The lender sanctions a home loan amount based on the market value and the condition of the property. Lenders usually provide 60% of the property value as the principal amount. The amount is disbursed either in instalments or lump sum payments and discontinued at the end of the loan tenure.
The borrower can occupy the property until their death. Once they die or sell their property, the entire loan amount becomes due. After the borrower’s demise, the children can repay RML to retrieve the property. Or else, let the lender sell it.
Key Features of a Mortgage Loan
· Loan Tenure–Typically, the loan tenure for a reverse mortgaged home loan is 20 years. But if the borrower wishes to discontinue the scheme, they can prepay the loan amount and reduce the tenure.
· Interest Rate – Unlike home loan interest rates, RML interest rates are usually 2.75-3% above the base rate.
· Monthly Payment–Under the RML scheme, the maximum monthly payment cannot exceed 50,000. For lump-sum payments, the maximum amount will be 50% of the total loan amount and is capped at 15 lakhs.
Eligibility Criteria for a Reverse Mortgage
Any senior citizen – who is above 60 years and owns a residential property – can borrow a reversed mortgage home loan, either individually or jointly with their spouse.
In the case of a joint application, the property mortgaged must be owned jointly or individually by the applicant. Also, one of the spouses must be a senior citizen and the other at least 55 years old.
Other significant RML eligibility criteria include –
· Age of the applicant must be at least 60 years or above
· Only a self-occupied property can be used as collateral
· The residual life of the property must be at least 20 years
· No litigation or liability on the mortgaged property
The Bottom Line
Are verse mortgage home loan is ideal for pensioners and retired individuals who are without a regular income source. Senior citizens can benefit from it since there is no immediate liability of repayment. Use the mortgaged loan amount to cover for finances like home renovation, medical emergencies, or daily expenses.
Get a home loan at competitive interest rates and preferential loan tenure. Use home loan EMI calculator online and estimate the EMI payments for a stipulated amount before applying for a loan.