Reverse mortgage loan: All you need to know
Reverse mortgage loan is not a very popular product in India primarily due to low awareness about the product
Simply explained, a reverse mortgage loan is the opposite of a traditional home loan. In a traditional home loan, the borrower pays the financial institution an EMI on a regular basis. In a reverse mortgage loan, the financial institution pays the borrower a certain amount of money on a regular basis. The scheme of reverse mortgage has been introduced for the benefit of senior citizens owning a house but having inadequate income to meet their needs. As per the Reserve Bank of India’s (RBI) norm in the case of married couples, they will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age.
Expert view
“Reverse mortgage is a type of a loan which allows homeowners to take a monthly/quarterly income against their home. Can be only availed if the owner is self-occupying the property. Eligibility is based as per valuation of the property keeping a certain margin as per the lender’s policy. Income received from the lender is non-taxable,” said Pramod Kathuria, co-founder and CEO, Easiloan.com.
The tenure of such loans ranges from 10-15 years. The applicant retains ownership of the house till they are alive. Upon death, their legal heirs have the option of repaying the loan to retain ownership rights. Else, the banks have the rights to the property.
That said, the payment to the property owner can be either a one-time bulk payment or a monthly payment option.
How is valuation done under reverse mortgage?
The valuation would be based on a number of factors such as the current age of the senior citizens, the market value of the property as well as the life of the house property, interest rates in the market, etc.
“The value of the house property is usually determined by the lender with the help of an in-house technical personnel or external experts for the purpose such as an actuary. Such valuation may be carried out by the lender bank at periodic intervals and accordingly, the quantum of loan would undergo revision as per the revaluation,” said Suresh Surana, Founder, RSM India.
Reverse mortgage loan is not a very popular product in India primarily due to low awareness about the product. Besides, as a country India have a culture of passing on ancestral property to the next generation. Income from a reverse mortgage loan remains the last priority for most seniors.
The generation of babyboomers in India largely prefers to share their house with their children, rather than living on their own.
“Low awareness of the product and complex features including periodic valuation of the property is why Reverse Mortgage is not very popular in India. Also, Indian parents like to pass on created wealth or such assets to the following generation and in case of need may opt for smaller/ rented housing option,” pointed out Kathuria.