Reverse Mortgages. What is it. Is it worth?

Recently there has been a lot of Buzz on Reverse Mortgage. Several financial institutions in India are serious about reverse mortgage market. So what is Reverse Mortgage? Well its basically a loan targeting Senior Citizens. A fairly new concept in India, the reverse mortgage product is a loan provided to senior citizens by mortgaging their homes; heirs can either repay the loan or forfeit the property.

Punjab National Bank, Dewan Housing Finance Corporation were the first to launch reverse mortgage products in India with few others including GIC Housing Finance, LIC HFC plan to launch their products with next 6 months.

Reverse Mortgage is ideally for people who were employed and may have recently retired. Circumstances may be such that savings are not much, which results in sudden deprivation of income source. When pension and other income does not come in aid, people tend to look for Reverse Mortgage products. In a country like India with Huge population, there have been a increasing number of senior citizens living by themselves due to migration of their children to other cities or countries in search of better employment opportunities. This has created a substantial market for reverse mortgage products.

Insecurity grows with age. Several issues trouble elders. Many small matters may look very big when one is advanced in age. There are some solutions too. Reverse mortgage is a product specially designed for those who have reached a particular age. It is being offered as one of the solutions to address aspects of income and insecurity at old age. Earlier no facility of any kind could be obtained by a senior citizen of the type referred to above. Now, there is hope and choice.

A basic eligibility criterion is you should 60 years of age and you should own a house or a residential apartment. Thro reverse mortgage one can obtain a definite and a stipulated payment on a reverse mortgage basis. If you need the facility, you have to mortgage your house property to a bank or an institution that will accept the same. The bank or the institution thereafter pays the agreed payment for the mortgage value to you usually, for a maximum period of 15 years. You are not required to service the loan during your lifetime. If you leave the property permanently, you have to repay the loan together with accumulated interest.

In the event of the death of the borrower, the legal heirs may repay the amounts due. If not, the lender will sell the property and adjust the outstanding. If the legal heirs repay the loan during the lifetime of the borrower, the lender will not sell the property, which will revert to the owners. Both husband and wife can be joint borrowers, if they meet the eligibility norms. In such an event, one of them should be over 60 years of age. The property should be self-acquired and self-occupied. The title must be clear and free of doubts and encumbrances.

Interestingly, the older the person, the higher is the quantum a person is likely to get for this facility. Money from reverse mortgage cannot be used for commercial purpose including setting up business, trading etc. The money from reverse mortgage can be used as a supplementary income for basic purposes including home renovation, medical emergencies and day-to-day living expenses.

One of the features of this facility is that you would be given a short period to reconsider your decision to avail the facility. If you feel that it is onerous or you have doubts on certain issues, you can cancel the mortgage by the exercise of rights provided under the documentation during the period of reconsideration. Any money received by you prior to this period will have to be refunded as per applicable norms. However, there may be some cost associated with such cancellation. But its good you have a chance to roll back if you don’t like the way such schemes work.

There is lot of finer prints in such loan documents, which you need to have a clear understanding. There may be other costs associated with the facilities. This will include cost of valuation, obtaining legal opinions, insurance, stamp duty, registration charges, etc.

Reverse Mortgage is still in primitive stage in India and one has to take all the precaution before going into such products. But having written all this things, I always think, is it not easy to sell the house rather than be on a loan during our last years?

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