Friday, July 12, 2013

Reverse mortgage - How can it help senior citizen

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With increased urbanization and prevalent nuclear family culture, many senior citizens are forced to fend for themselves. This situation has been aggravated by increase in the cost of living accompanied by longer life expectancy, thus making it very difficult for the senior citizens to make both the two ends meet.

 

In order to help those senior citizens who own their house but don't want to sell it, the Government of India introduced reverse mortgage a scheme in 2008.

 

Under this scheme, the senior citizens can unlock and tap the value of their residential house while enjoying the benefits of living in the house during their lifetime.

 

What is the reverse mortgage scheme?

 

This scheme is exact 'reverse' of plain home loan scheme. In case of a home loan one takes a lump sum loan and repays it in instalments in future. Under the reverse mortgage scheme, you get instalments and the loan is repayable in lump sum in future.

 

Here, the payment stream comes to the borrower for a fixed period of time in the form of monthly, quarterly or yearly payments. The maximum permissible monthly payments under this scheme cannot exceed Rs. 50,000 per month.

 

You can even get lump sum payments under reverse mortgage loan however the total amount which you can get as lump sum which cannot be more than 50 percent of the total eligibility amount subject to a maximum of Rs. 15 lakh.

 

The one time lump sum loan can only be taken for the purpose of meeting medical expenses for yourself, your spouse or any dependent person.

 

The money receivable under regular reverse mortgage scheme money so borrowed can only be used for the genuine needs of the owner like medical emergencies, day to-day expenses, repairs and renovation or repayment of loan taken for the same property.

 

It is important to note that should not be used for any speculative purpose.

 

 

What is the tenure, rate of interest and repayment of the loan?

 

Various banks have devised their own schemes within the framework of the scheme announced by the government. Broadly the tenure of such loan shall not be more than twenty years.

 

This is the period during which the owner of the house will continue to receive the periodic payments. However in case the borrower outlives the tenure of the loan, the payment stream shall stop but he can still continue to stay in the house.

 

Even after his death, his spouse can also continue to stay in the same house without having to worry about repayment of the loan. The rate of interest will vary from one lender to another.

 

The lender will recover normal charges associated with the mortgage like appraisal fee and legal charges for documentation etc. The lender is however required to disclose the fee chargeable in advance. The lenders are free to provide the loans under fixed or floating rate regime.

 

Once you have obtained reverse mortgage loan, it is not necessary for you to continue with this for the entire tenure of the loan. You can always prepay the outstanding loan and get your documents released any time.

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