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An Introduction to Reverse Mortgage Loan

An Introduction to Reverse Mortgage Loan (1)

The Reverse Mortgage Loan was launched in India in 2007 to enhance and help the life of senior citizens who owned personal property. This was a measure to entitle them to fulfill their daily expenses related to basic sustenance like food, medicine, maintaining their house, etc. Reverse mortgage loan comes as a savior when most people after 60 don’t have a regular source of income in India. There is no gender differentiation for availing the loan facility, and if applying for a joint loan, then the age limit for the spouse has to be 55 years or above. The loan is not given against inherited property, so the applicant must have their own purchased house.

Just like a salaried or self-employed individual, senior citizens and retired individuals also need funding to meet any unforeseen financial emergencies. A financing option like a reverse mortgage loan can meet these needs.

Availing Reverse Mortgage

A reverse mortgage loan is a unique credit alternative for individuals over 60 years and not having a regular source of income. The borrower does not need to make monthly payments after availing this loan. As the name suggests, the individual will have to mortgage their residential property and repayments are done only if the borrower has passed away or moved out of the house or sells the property. Once the loan is sanctioned, the borrower can receive the loan amount in the form of a monthly payment, as a lump sum or line of credit to meet their financial requirements. The loan amount to be credited is determined based on the value of the house to be mortgaged.

Features of Reverse Mortgage

Reverse mortgage assures the financial support and independence to the borrowers in their old age. The biggest advantage is that there is no immediate financial liability on the borrower as they do not need to repay the loan amount in EMIs. When the borrower avails a reverse mortgage by mortgaging their residential property, they also enjoy the privilege to continue to own and live in their mortgaged property.

Reverse Mortgage has the following benefits

  • Helps in existing finances – As there are no monthly repayments to make, the loan received is available for the borrower to spend as desired. This substantially improves the availability and disposability of instant finance.
  • The flexibility of use – Availing a loan through reverse mortgage gives the flexibility to use funds for any purpose as per the needs and requirements.
  • Low or No risk of defaulting – A mortgaged house owner keeps possession of the house until they permanently depart. It does not attract any risk of non-payment, but they have to pay the property taxes and insurance.
  • Repayment Benefit – During repayment, a borrower needs to repay only the mortgaged property’s market value irrespective of the loan amount sanctioned.

The disadvantages –

  • The amount granted for a reverse mortgage is much less in comparison to the amount which can be obtained through a traditional mortgage.
  • Usually, the loan tenure is not beyond 20 years. For eg, if a person aged 60 years avails of a reverse mortgage for 20 years and lives beyond the loan term of 20 years, he will have to repay the loan at the age of 80 to keep possession of the house.
  • The biggest misinterpretation of the reverse mortgage is that people think that the property mortgaged is unrecoverable once it is pledged to the bank.

The Eligibility –

  • A borrower should be above 60 years of age.
  • Must have a self-acquired and self-occupied residence.
  • If applying jointly, the spouse should be above 55 yrs.

Age of the borrower, market value of the property and interest rates are the minimum requirements on which the loan is granted.


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