What is Reverse mortgage loan?

 

Not many people are aware of the concept of reverse mortgage. If you are someone who doesn’t know what it is and how it functions, I am here to help you.

What is a Reverse mortgage loan?

For the better understanding first understand the concept of a mortgage, if you buy a house on loan from the bank and the bank transfers the entire loan amount to the builder/ seller of the property and the ownership of the property transferred to the bank till the borrower pays the entire amount this is known as the mortgage.

Now let us understand the concept of reverse mortgage. 

The reverse mortgage is exactly opposite to the other types of mortgage. Here banks pay installments to the borrower and the borrower will be the true owner of the property. Later onwards gradually the  bank becomes the true owner of the property.

Who can apply for reverse mortgage?

Now those who are new to this concept must be wondering why someone will give their property to the bank. Understand the concept with the example below.

Reverse Mortgage Example

Suppose Mr A who is 62 year old and Mrs.B 60 year old. They both dont have any children or the couple is not dependent on their children and at their younger age they have earned good amounts of money. But at the present time the couple is short of money to meet monthly ends or other expenses like medical expenses,etc. 

So they figure out an option for financial support to get a reverse mortgage on their big house. 

Function of reverse mortgage

• The property owner transfers the ownership of the property in the name of the bank.

• This is done by making a will.

• When the property is transferred to the bank, then the bank starts paying monthly installments to a senior citizen couple.

• Maximum 60% of the property value can be taken as a reverse mortgage.

Eligibility criteria to apply for reverse mortgage

• The applicant should be above 62 years of age.

• If the applicant spouse is alive he/she should be above 55 years old.

This is the concept of reverse mortgage loan. I hope now you know what is it, who is eligible for reverse mortgage and what are its functions.

 

In India, the reverse mortgage scheme was introduced for the benefit of senior citizens owning a house but having insufficient income to meet their daily needs. Any homeowner above the age of 60 can be eligible for the reverse mortgage loan. (It allows him to turn the equity in his home into one lump sum or periodic payments mutually agreed by the borrower and the banker.) Here are a few points that will make the concept more clear: a. There shouldn’t be any encumbrances on the property and should have a clear title of the borrower. b. Until the borrower/s are alive, there is no need for repayment of the loan. However, all the taxes related to the house has to be paid by the owner. c. The loan amount is calculated on factors like borrower’s age, the value of the property, current interest rates and the specific plan is chosen. It is said that the higher the age, the higher the value of the home, the more money would be available. d. The amount can be a lump sum or periodically depending on the bank as well as the owner’s requirement. e. Joint borrowers - Married couples can also avail this scheme. In this case, both the borrower’s age should be above 60 years. Now, speaking about what happens to the reverse mortgage loan and the property after the death of the borrower, here are a few points: a. The loan amount shall become due and payable only when the last surviving borrower dies or when he/she decides to sell the property or move out permanently. In the latter case, the mortgage amount would be deducted and the remaining amount would be given to the owner. b. Upon the death of the owner, the legal heirs need to settle the repayment of the loan. They can either keep the house or sell it. If they decide to sell it, the mortgage amount would be deducted and the remaining amount would be given to the legal heirs.