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Reverse mortgage loans enable borrowers, with no monthly mortgage payments, to turn their home equity into cash income. It is a real estate loan that is the opposite of a traditional mortgage. The bank here pays an amount against a property asset, whether it's a lump sum or periodic payouts.
Who Should Consider Reverse Mortgage?
A reverse mortgage benefits retired people whose net worth is locked up in a self-acquired and self-occupied home, especially if they find that their expenses surpass their post-retirement income. Applicants who are above 60 years of age, can make use of this option offered by Bajaj Housing Finance Limited. The repayment tenure is usually up to 20 years.
The lender's margin typically is 20%. So, if the house is priced at Rs. 1 Crore, eligibility for loans is Rs. 80 Lakhs. A reverse mortgage loan, unlike a mortgage advance, does not establish immediate liability for borrowers. Lenders thus initiate loan recovery only after the borrower permanently ceases to live in the property or intends to sell it, or on his/her demise.
How does the Applicant Benefit from Reverse Mortgages?
The applicant and spouse will be able to realise the worth of their house by using it as residence during their lifetimes. If the borrower agrees on an annuity payment, then the bank pays out a certain amount of the loan value for a particular tenure. Assume that the value of the loan is Rs. 75 Lakhs. The lender also pays 50% at a time and the balance is disbursed as periodic payments. Often excluded from tax are benefits received by senior citizens.
If the asset's market value increases in the interim, the borrower can apply for a payout increase. By arriving at a 'forced selling value' at the outset, lenders usually protect against a decrease in the value of the asset. They could bargain for lower payouts or shorter tenures if the decline is serious.
Usually, banks do not ask for extra collateral. In case, post the borrower’s and his partner’s demise, the lender seeks to finance the mortgage and, in the absence of a legitimate heir settling the debt, the property is auctioned off. Any surplus from the proceeds made from the sale shall be handed over to the legal heir.
Can the applicant claim back the asset from the lender?
Yes, by completely repaying the loan. He/she has complete right to continue to reside in the property if the applicant is alive after the term expires, but interest continues to accrue on payments made. The interest rates on reverse mortgage advances are typically slightly higher than those available to mortgage advances, such as home loans. Borrowers can choose between choices that are fixed and floating.
Wrapping Up
In India, senior citizens are reluctant to write off assets originally intended to be inherited by the next generation. Even if applicants prefer a reverse mortgage, the next generation that expects to inherit the property may expect resistance. That's probably one reason why in India the notion has not taken off. Lack of awareness may be another explanation for poor offtake. The stability and social security that reverse mortgages provide to the elderly are one of the prime benefits. A lot of mental peace and a restored sense of integrity is provided to the elderly by the concept of becoming financially independent, not running out of funds in the event of medical emergencies and not being a burden on their children.
If you are looking for further financial aid, in these tough times, you can benefit from the Bajaj Housing Finance Loan Against Property, available on Finserv MARKETS. The loans come with a range of benefits, like instant approval, flexible repayment tenures and attractive interest rates.
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