The life expectancy in India has been rising steadily in the last few decades, so have the costs of medical treatment. For senior citizens, who have a lack of regular income or financial support from children, unfortunately, this could also lead to a financial crisis. Plus, gone are the days when parents can rely on living with their children. In such a scenario, The Reverse Mortgage, introduced by the Union Government in 2007, is an answer to such issues faced by senior citizens, giving them a life of dignity.
Reverse Mortgage Loan (RML) enables a Senior Citizen i.e. above the age of 60 years to AVAIL of PERIODICAL PAYMENTS from a lender against the mortgage of his/her house while remaining the owner and occupying the house.
A reverse mortgage in a simple term is just “opposite” of a Home Loan, because like in the traditional mortgage, here the payback stream is reversed. Instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower. Which means that it is a loan available to (i) Homeowners (Self occupied residential house/flat where the titles are clear; and the life of the property is more than 20 years) (ii) who are 60 years or older, this enables them to convert part of the equity in their home into cash.
This product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction for how reverse mortgage proceeds can be used.
The Senior Citizen borrower is not required to service the loan during his/her lifetime and therefore does not make monthly repayments of principal and interest to the lender. With a reverse mortgage, you always retain title or ownership of the home. The lender never, at any point, owns the home even after the last surviving spouse permanently vacates the property.
The loan is repaid when your home is sold, upon your death, or when your home is no longer your primary residence. The bank first gives an option to the next of kin to settle the loan along with accumulated interest, without sale of property. If the next of kin is unable to settle the loan, the bank then opts to recover the same from the sale proceeds of the property.
With a Home Equity Conversion Mortgage, you can receive a fixed monthly amount for a specified period of time, fixed monthly cash benefit for as long as you live in your home.
The amount of funds that a person is eligible for - depends on his age (or, in the case of couples the age of the younger spouse), the value of the home, the interest rate and upfront costs. The older you are, the more proceeds you may receive. Even though, as long as you live in the home, you are not required making any monthly payments towards the loan balance, but you must remain current on your property taxes etc. Any lapse in these policies can trigger a default on your loan.
The Reserve Bank of India has formulated the following guidelines for a reverse mortgage.
• Maximum loan amount would be up to 60% of the value of the residential property.
• Maximum tenure of the mortgage is 15 years and minimum is 10 years. Some banks are now also offering a maximum tenure of 20 years.
• Option of monthly, quarterly, annual or lump sum loan payment.
• Property revaluation to be undertaken by the lender once every 5 years (The quantum of loan may undergo revisions based on such re-valuation of property at the discretion of the lender and If at such time, the valuation has increased, borrowers have the option of increasing the quantum of the loan. In such a case, they are given the incremental amount in lump sum)
However before opting this, as a regular income option lender must analyse all income sources -- including pensions, look closely at how much money is left over after paying typical living expenses.
