With the best of planning its still possible to be finding yourself facing financial challenges during retirement. The house that you built with your hard-earned income can now come in handy to take you through a comfortable retirement. Reverse Mortgage is the name commonly used for such an arrangement where you are paid a certain amount as a monthly instalment against your primary home even as you continue to live in it. Reverse mortgage is still in its early days in India. But its useful to start understanding what it means and how it works in anticipation of a rainy day. The author in the article below tries to take you through the basics of reverse mortgage. Team RetyrSmart
Reverse Mortgage can help make retirement life worry free
The government introduced Reverse Mortgage Scheme, in 2008. Let us discuss the scheme in detail.
Basic features of the scheme
The reverse mortgage scheme is exactly opposite of the pure home loan product where the borrower receives money in instalments and which gets paid off in full later against the pure mortgage loan where the borrower borrows in lump sum and repays in instalments. The borrower can also get some lump sum under the scheme.
The amount of loan available is dependent on the market value of the property, as determined by the lender, age of the borrower and the prevailing rate of interest. Since the purpose of this scheme is to supplement the resources of senior citizens, the maximum amount one can get under the reverse mortgage is capped at Rs 50,000 per month. Likewise, the lump sum available is also restricted to 50% of the total amount available subject to Rs 15 lakh maximum. The lump sum facility can only be availed for limited purposes like medical treatment of the borrower, spouse and dependent persons or for repair, renovations of the house or for repayment of any outstanding loan on the property. The money cannot be used for any business purpose including any speculative purposes.
Under the reverse mortgage instead of periodical payments, you have an option to buy an annuity from a life insurance company with the available loan amount. In such case, the lender pays a lump sum to the life insurance company for buying the annuity of your choice.
Who can avail reverse mortgage loan
Any person owning a residential house and stays in the same house and has completed 60 years of age can avail this facility, either singly or jointly only with spouse who has completed 55 years. The residential house can either be owned by the senior citizen or jointly with the spouse on which no loan is outstanding. In case you wish to avail this loan against the house property on which any loan is outstanding, you need to get the loan repaid. The lender should have the sole charge on the property being mortgaged. The outstanding amount of an existing loan against the property can, however, be repaid out of the lump sum amount available under the reverse mortgage. This facility is not available against any let out house or any commercial property.
Along with the application for mortgage loan you have to furnish your PAN along with the list of legal heirs. You are also required to furnish the copy of a Will duly registered along with the application. So in case you have not executed any Will, you have to first execute a Will and get it registered before you apply for this loan. You are also required to intimate the lender in case you modify the Will later on. The list of bank branches from where this facility is available can be accessed at the link: http://www.nhb.org.in/RML/List_of_Branches.php
Interest, tenure and repayment terms
The loan is generally available for a maximum period of 20 years, during which the lender pays you periodical streams of payments monthly, quarterly, half yearly or yearly. Once the tenure is over, though the payments stops, you need not vacate the house and after your death your spouse can continue to use stay in it. During currency of the loan if you do not desire to continue with the loan, you can pay the amounts outstanding without any prepayment penalty. The lender is allowed to review the value of the house and thus your eligibility periodically and review the amount of monthly payments.
The loan is not required to be serviced during the lifetime of the borrower and the spouse. After the death of borrower/s, the legal heirs can get the property redeemed after paying the outstanding amount. In case they do wish to claim the house, the lender is entitled to dispose off the property and pass on the surplus to legal heirs, if any. It is important to note that there is no negative equity in the reverse mortgage loans so the legal heirs are not liable to pay the lender for any shortfall in case the amount realised on sale of the property is lower than the loan amount outstanding.