What is Reverse Mortgage Loan for Senior Citizens ?
To provide support to elderly citizens, the Government of India introduced a “Reverse Mortgage Scheme” in 2008. It is meant for those elderly citizens who own a home but do not desire to sell it. The reverse mortgage scheme is very beneficial for senior citizens who require funds for health care treatment, children’s education, or renovation of their residential property. The scheme allows tapping the value of the residential property during their life. It is not a popular scheme due to its notions but it is expected to be in the news post the COVID-19 outbreak due to its advantages.
Features of the Reverse Mortgage Scheme
A reverse mortgage scheme can be understood as the opposite of a home loan. The senior citizen who is the borrower receives the money in instalments from a banking institution that has to be paid back later. The payments can be received in the form of a lump sum, credit line, or periodical. The value of the property is determined by the loan amount, age of the borrower, and interest rate. The maximum amount capped for the monthly payments is ₹50,000 and the maximum lump sum payment can be 50% of the total eligibility amount or ₹15 lakhs, whichever is lower.
The amount disbursed for the loan can be used for multiple purposes like medical treatment of a spouse, borrower, or any dependent person, day to day needs, renovation of residential property, etc. It must be noted that the money should not be used for business, trading, or speculative purposes.
Tenure and Rate of Interest of a Reverse Mortgage Loan
A reverse mortgage loan is available generally for 20 years when you continue to stay at your property and receive periodical payments. Unfortunately, if the borrower dies, the spouse can stay in the house till her/his death.
Talking about the rate of interest, it varies from lender to lender. It would roughly be around 7.5% to 9.5% based on the lender and other parameters. If you consider terminating the loan,
the borrower can pay the outstanding amount whenever they want to, without paying any prepayment charges.
As we understand that the senior citizens do not have any source of income after retirement, the borrower is not supposed to repay during his lifetime. The legal heirs, after the borrower’s death, have the authority to redeem the property by repaying the outstanding amount. It may also happen that the legal heirs do not come forward to redeem it, in which case, the banks would sell the mortgaged property and realize the amount.
Benefits of Reverse Mortgage for Senior Citizens
· A permanent shelter- Even if you have availed reverse mortgage loan, as a senior citizen, you can continue to live in the mortgaged house after the loan tenure expires. The bank does allow some kind of settlement after the borrower’s death.
· Being a co-applicant- If the loan has been applied by the borrower and spouse as co-applicants, disbursals would continue to the spouse after the death of one of the borrowers.
· No immediate liability- The senior citizens can leverage the benefits of the reverse mortgage loan as there is no immediate liability. The outstanding amount can either be paid later or settled by selling the house after the death of the borrower.
· Benefit from equity- You can enjoy the benefits from the equity created by you and continue to live in the home without making any payments on the loan.
· Receive regular loan payments- The loan payments can be received from the bank in a flexible mode. Depending upon your requirements, you can receive the loan payments as monthly, lump sum, quarterly, or periodical payments.
Eligibility for a Reverse Mortgage Loan
Senior citizens who are above 60 years of age having a residential property can apply for a reverse mortgage loan.
The borrowing limit is-
· Minimum of ₹3,00,000
· Maximum of ₹1,00,00,000
The limit is based on the value of the property and the age of the borrower/s. A borrower can receive up to 60% of the value of the residential property as a reverse mortgage loan. Apart from the above eligibilities, certain important terms and conditions are associated with the loan.
ü The residential property of the borrower is the permanent primary residence
ü The borrower must a responsible citizen paying the taxes and insurance related to the residential property
ü House is maintained properly
ü The residential property does not have any issues, pending cases, or any other liabilities
Documents Required for a Reverse Mortgage Loan
The reverse mortgage loan is a simple process as the eligibilities include papers of the residential property, KYC documents, and bank statements. The mandatory documents include the PAN Card and Application form. You can submit any one identity proof such as an Aadhaar Card, Passport, Driving License, Voter ID, Government Employee ID, and ID issued by the Government of India.
Apart from that, you have to submit proof of date of birth, income, signature, and address. As soon as you submit the documents, the banks start the process and sanction the loan within 5-7 Days.