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Reverse Mortgage Loans

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Reverse Mortgage Loans

Old age is very common in human life irrespective of one’s country, cast and region, gender and income level. Old age means problems related with health, finance and social status, in old age one’s regular income decreases after retirement while medical and social expenses increase. A regular income that can help them meet their financial needs and maintain their current living standards becomes important. One typical feature with most senior citizens is that their residential property accounts for a significant portion of their total asset composition.

With unstable interest rate movement, it has become very difficult for one, especially the elderly, to earn these days by investing in traditional instruments on a regular basis. Alternatively, investing in riskier instruments, which offer higher returns then traditional instruments, is not advisable for the elderly at this stage of their life. They simply cannot afford to gamble with their hard-earned money. Moreover, not all of them are fortunate enough to have sufficient deployable fund for investment and the majority of them do not receive any pension. At present, there are only two main ways of getting cash for one’s house, either by selling it or borrowing against the house. In the former, when the house is sold, one has to move out, while in the latter case, the person would have to make monthly loan repayments, both of which may not be feasible in old age.

Reverse mortgage is known as lifetime mortgage in the UK And it is now a well-exposed financial product in countries like the USA, the UK, Canada, France, Australia, Singapore and in various other countries.

A senior citizen who owns a house can avail himself/herself of monthly income against the mortgage of their house, while remaining as the owner and occupying the house throughout his/her life time, without repayment or servicing the loan. The borrowers can opt for receiving the money as fixed monthly payment also and the loan amount will be given in the form of annuity (a kind of monthly income) for 15 years, which will be fixed, without considering the age of the borrowers. Under this scheme, the borrower can live till he/she is alive and later his/her spouse too can do so. It means during their lifetime, they need not worry about shelter.

Main Features of the RML Scheme  The applicants must be at least 60 years old and the residual life of the house should be more than 20 years and the borrower must usually live in the house.

A borrower can obtain money in lump sum or monthly installments or a combination of both i.e., partly in lump sum and partly in installments.

Loan amount is based on the age of the borrower and co-borrowers, current and future value of the property, current interest rate and interest rate fluctuations.

Revaluation of the property is done once in every five years amount of the loan may be revised on the basis of valuation of the property.

RML will be secured by way of residential property but not commercial property which is not eligible.

In RML, there is no formal restriction on end use of funds; they can be used for any purpose.

In RML there is no need to repay the loan. After the death of the borrower or his spouse whichever is later, the loan will be liquidated through the sale proceeds of the house.

Maximum duration of the RML product is 15 years. RML is not free of cost. Other than interest, some costs include application fee, closing cost, legal fee and registration fee and possibly a monthly service fee. RML is tax-free and does not affect social security or Medicare benefits.

Benefits of Reverse Mortgage Loan

In this scheme the house-owner retains the house till he/she is alive and he /she gets a regular income during his/her lifetime, which is helpful to pay of day-to-day expenses.

Under t his scheme, borrower can meet cash needs from the equity of the house, without incurring additional monthly expenses.

Lenders cannot force home-owners to sell the property to repay the loan.

From the bank’s point of view, mortgage on the property in their favor ensures that there is no scope for default.


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