Reverse Mortgage Loan: Features, Eligibility And Other Factors
As the name suggests, a reverse mortgage loan differs from a traditional mortgage because roles are switched between borrower and lender.
In a traditional mortgage, the owner of a property is the lender until the repayment of the loan is completed. In a reverse mortgage loan, the borrower remains the owner of the property and the ownership is shifted as the loan amount and tenure nears the end. If the owner wants, he can recover the property by repaying the loan amount along with interest or by selling the property.
Otherwise, the lender will sell off the property to recover the loan amount. Most reverse mortgage loans are government insured.
Workings of Reverse Mortgage Loan
In a reverse mortgage loan, the property owner keeps the property as a mortgage. The agreement between the lender and borrower decides how the borrower wants to receive the money- monthly, quarterly, annually or lump sum. The lender does a background check of the property before approving the loan.
There are certain terms and conditions which vary depending upon the lender. The owner doesn’t necessarily have to repay the loan amount. The lender will sell off the property after the demise of the owner to recover the loan amount. Excess amounts, if any, would be sent to the legal heir of that property.
Interest Rates of Reverse Mortgage Loan
Interest rates of a reverse mortgage loan depend on the type of disbursements. Only if the loan amount is provided in a lump sum amount will it have a fixed interest rate. Other types of disbursements will have a floating interest rate as the amount is being paid periodically for a long period of time and interest rates keep changing. Usually, interest rates are always 1% to 2% higher than the contemporary home loan interest rates.
Eligibility For Reverse Mortgage Loan
You need to satisfy the following criteria to be eligible for such a loan:
- Property must be residential and have sole or joint ownership.
- The property owner’s age should be 60 years, and in the case of joint ownership, the spouse’s age should be a minimum of 55 years. However, it may vary from one lender to another.
- The property should not be more than 20 years old.
- Property should be free from any liability. If there is a home loan against that property, then the owner should avail of a NOC.
Also Read: Home Loan Process: A Step-by-Step Guide to Housing Loan Procedure
Documents Required For Reverse Mortgage Loan
The following documents are required to avail a reverse mortgage loan in India from a lender:
- ID proof
- Address proof
- Tax receipts, title deed or any other document proving ownership of the property
- Passport size photograph
- Bank account statement for last 6 months (12 months if the owner has any other loan on the property)
- Income proof
- Income documents such as a copy of Form 16, IT return or salary slip for the last 3 months
- Qualification certificate if you are a Chartered Accountant, Architect, doctor or Lawyer
- NOC if one has availed any loan on that property
- Occupancy certificate for ready to move in property
- For property owners in Maharashtra, it is mandatory to submit a sale certificate and registered agreement
- Related property documents such as conveyance deed, builder’s development agreement
Disadvantages and Advantages of Reverse Mortgage Loan
In the following section, you will learn about the advantages and disadvantages of a reverse mortgage loan:
Advantages:
- The loan can be availed in case of sudden medical expenses.
- It is not mandatory for the borrower to repay the loan amount.
- Competitive rates of interest with other types of mortgages.
- There is no tax liability.
Disadvantages:
- Legal heirs have to repay the mortgage to get ownership of the property.
- It is mandatory to reside in that property for a minimum of one year.
- You might have to pay insurance premiums.
- It could also affect your other retirement benefits.
Also Read: What Are Retirement Mutual Funds: Benefits, Tax & Should You Invest?
Tax Benefits on Reverse Mortgage Loan
If one needs to avail this loan, the amount is exempted from tax liability under Section 10(43) of the Income Tax Act, 1961. This is applicable for any type of payment, periodically or in a lump sum.
How To Apply For a Reverse Mortgage Loan?
To apply for a reverse mortgage loan online, you need to follow the given steps:
Step 1: Go to the website of bank or NBFC
Step 2: Click on the ‘Apply Now’ button under the reverse mortgage section
Step 3: Fill out the application form, followed by submission of relevant documents
Step 4: A bank representative will get in touch with you for verification of documents
Step 5: Upon successful verification, they will approve the loan
Also Read: Top 9 Banks/NBFCs for Home Loans in India (2022): Interest Rates, Eligibility And Documents Required
Final Word
A reverse mortgage loan is one of the most reliable options for senior citizens. The best part of this loan is you don’t necessarily have to pay off the loan. Another advantage is that if the property owner or his/her spouse are alive till the end of loan tenure, they can still reside in that property till death. However, disbursements will not be available anymore.
FAQs on Reverse Mortgage Loan
Ans: A reverse mortgage loan is a secured loan. The credit score is important but not as important as long as you have a property free from any liability.
Ans: To apply for a reverse mortgage loan offline, visit the nearest branch of your respective bank branch or lending institute. Submit all relevant documents, and an associate will assist you in the application process.
Ans: The maximum monthly payment is usually Rs. 50,000, but it can vary from one lender to another.
Ans: A reverse mortgage foreclosure occurs in case of an unforeseen circumstance, such as the death of the borrower when the bank or lending institute requires full repayment of the loan amount.
Ans: In the following scenarios, you might have to repay the loan amount:
Death of borrower
Selling off that property
Not residing in the property for more than a year
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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