Individuals with regular income and who own property, can avail a loan against it to deal with an emergency or substantial expense. Retired people also have similar options with reverse mortgage plans. If you are a senior citizen looking for a regular source of income besides your pension, here is how a reverse mortgage can be useful to you.
# What is a Reverse Mortgage Loan?
Suppose you are in need of funds, but you are not looking to sell your house. In such a case, the best way to ensure a lifelong monthly income is through reverse mortgage loan. Moreover, you do not need to repay this credit during your lifetime. After you pass away, your legal heir can either repay the sum or sell the property to clear the debt. However, keep in mind that this form of credit is only available to people aged 60 or above.
In such a loan, the lender generally does not offer a lump sum payment of the principal sum. Instead, you receive this money as monthly instalments for as long as you live or until the loan tenor lasts. This is contrary to other forms of loan against property, where you, as the borrower, need to pay EMIs towards repayment.
# Types of Reverse Mortgage Loans in India
In India, lenders offer two main types of reverse mortgage loans to senior citizens. Here is a detailed look at what they are.
- Regular Mortgage Loans
In this type of credit, two parties are involved, namely, you and the lender. Here, the lender is your source of annuity, ensuring you receive the loan amount through monthly instalments. Regular reverse mortgage schemes have a fixed tenor of 20 years. However, it can end sooner if the borrower passes away.
Some NBFCs offer up to 50% of the loan value as a lump sum in the case of financial emergencies.
- Reverse Mortgage Loan Enabled Annuity (RMLeA)
This form of the credit involves three parties, namely you, the lender and your insurance provider. Here, the financing company does not offer financial assistance directly to the property owner. Instead, it pays one lump-sum fee to the insurance company. That company then makes the payment to you every month, based on the actuarial pricing.
These types of reverse mortgage loan do not have any fixed tenor. The annuity lasts as long as the lender lives. Moreover, monthly payments through an RMLeA are considerably higher than through regular RML.
Another benefit of this type of credit is that the loan-to-value increases with the lender’s age. Between 60 and 70 years, the LTV is 60%, between 70 and 80 years, it increases to 70%. Lastly, if you are aged above 80 years, the LTV is 75%.
# Eligibility Criteria for Reverse Mortgage Loans
For a loan against property, you need to meet a few simple eligibility criteria. The same is true for RMLs as well. Here is a look at what these criteria are.
- You must be a citizen of India.
- You must be aged 60 years or older. The co-applicant, if any, must not be younger than 58 years at the time of this loan application.
- You must own residential property with all necessary documents and papers.
- Your credit score also affects your chances of loan approval. Keep a high enough score to ensure the best loans.
# What Happens to Your House After Death?
When you pass away, your legal heir will have an option to save the property from sale. If he/she can pay off the credit, they can reclaim the property from the lender. However, if your heir fails to pay the required sum, the lender is free to sell your property to recover their money.
# Benefits of Reverse Mortgage Loan
One major benefit of a reverse mortgage is that you are free to spend the loan sum without any restrictions. It is similar to a loan against property, where how you use the loan against property is up to you. Moreover, no repayment for the loan makes it a convenient source for emergency funds.
There are several financial institutions, including NBFCs that offer such credits. They also provides pre-approved offers on loan against property, making it quicker and easier to avail. These offers are available for a range of products, including home loans, credit cards, business loans, personal loans and more. You can check your pre-approved offers by providing your name and phone number.