Reverse Mortgage – unlock the golden stick

Gone are the days when parents expected their children to become their old age stick and be a part of their lives in their old age. And also with changing goals and aspirations children also want to move out of their comfort zone to achieve big in their lives. But, to achieve this so-called “big” they forget what they are leaving behind.

With the increasing living cost everywhere it includes the cost of medical treatment too. The senior citizens who do not have a regular income and lack the financial support from their children have to suffer from an extra burden of loans and face a financial crisis.

Even after so many years of reverse mortgage scheme being launched in India, the reverse mortgage schemes have given a bland performance. The basic reason behind this is because of the emotional values and their emotions attached to their homes. The property gets transferred from the first generation to the next generation unless there is any severe financial crunch. However, these schemes are quite popular in Western countries, where people look forward as a means for regular income even after retirement.

What are reverse mortgage loans?

A reverse mortgage loan can simply be explained as a mortgage or a loan against property with special features. In this scheme, a senior citizen who owns a self-occupied house may get a regular income or a lump sum amount by mortgaging the property with the Bank/ NBFC or any other financial institution. The payment mode obtained could be a lump sum amount or can be borrowed on a monthly, quarterly, yearly basis at a particular rate of interest.

When you follow a regular payment system, the lenders can extend your loan tenor for a long period that may span over 20 years. Even if the cost of the mortgaged property is quite high as you own an expensive home in a posh locality of the city, there may be a situation of not earning a steady income after retirement. In such case, your property becomes more of a liability instead of an asset, as you have to pay the taxes, bills and bear the other maintenance costs along with your other personal expenses. Here, the Reverse mortgage plan comes to the rescue for such people.

The repayment

The repayment of the loan in reverse mortgage scheme is done either by the borrower or by his beneficiaries after the completion of the loan tenor. A borrower can anytime terminate the mortgage in between the term by paying the due amount along with the interest and other bank charges. In case of any sudden demise of the borrower, the legal heirs of the borrower can get the property by paying the due amount to the bank. If the borrower or his be beneficiaries are unable to repay the due loan amount then the Bank/NBFC or the other financial institution has a legal right to recover the due amount by selling the house. Any excess amount received after selling the property is returned to the borrower or his legal heirs.

It will not be wrong if I say that the reverse mortgage is completely the opposite of conventional mortgage loans. The borrower can easily live in the property till the end of his life and can receive a periodic payment because of the loan.

The eligibility

To be eligible for the reverse mortgage loan, the borrower should be above 60 years of age and have a self-acquired and self-occupied residential property. If the spouse is the co-applicant then she should be at least 58 years of age. The Borrower’s age, market value, the condition of the property and interest rates are the criteria upon which the loan is being granted. However, the borrower gets to reside in the house, he has to bear the payment of all the related dues and personal expenses such as municipal taxes, utility bills, and other taxes, etc. In the conventional mortgage system, the borrower had to show proof of his ability to repay the loan EMI’s and bear the extra expenses along which is not required in reverse mortgage schemes. Hence, your property is your guarantee.

The benefits

• During the reverse mortgage, the borrower can easily repay the loan amount during the loan tenure and is not liable to bear any prepayment or penalty charges.
• The borrower can continue to live on the property premises even after the loan tenure is finished and the settlement is done only after the death of the borrower.
• If anyone of the borrowers dies then also another borrower can continue to live in the property premises as the settlement is done only after the death of both the borrowers.
• Foreclosure: the loan can before closed by the lender only

If the borrower is not staying in the property continuously for the period one year

The borrower has not paid the property taxes and is not able to bear the other expenses of the home

If the borrower makes any changes in the property that can further affect the security of the loan for the lender. The security reasons can be renting out the part of the complete property premises on any addition of the ownership.

The shortcomings

• The main drawback is the disbursed amount. The amount disbursed towards the reverse mortgage is quite less as compared to the amount that one can obtain by going for a traditional mortgage.
•  Another drawback is the loan tenure. Under this scheme, the loan tenure cannot exceed more than 20 years. Suppose a person aged 65 years gets a reverse mortgage loan for 20 years and lives beyond the loan tenor of 20 years. In this situation, the borrower has to repay the loan at the age of 80 to retain the house.

• The reverse mortgage system involves a lengthy procedure for the documentation which can be a complicated and hazardous thing to do for the senior citizen.

• The monthly payments are fixed and there is no provision to increase the amount in case of any emergency.

Improvements required

• The life expectancy in India is typically 65 years. The reverse mortgage schemes offer loans to senior citizens above 60 years. In such a situation, the scheme doesn’t serve the purpose because the person had already spent a large part of his life. To make these schemes more relevant to the consumers, the eligible age to avail the loan should be reduced to 50 years.

• To avail of a reverse mortgage loan, you should have a self-occupied property and it cannot be given on rent for any reason. This directly affects the popularity of the scheme. In certain cases, the borrower might not require the entire house. For security reasons and to bear the other expenses the borrower should be allowed to lease or partially lease the house in addition to his income.

• The loan tenure should be converted to the borrowers’ lifetime instead of 20 years.

The points can help the borrowers to avail or to look forward to the reverse mortgage schemes. The reverse mortgage system is relatively a new concept for the Indian mindset and it will take some time to accept it. But as a financial tool, the reverse mortgage scheme is an augment for the senior citizens to have a steady and stable income in their old age. Despite having many drawbacks, it can prove to be a great help which can help the senior citizens to live a quality life along with their pension.