The Mortgage is a type of loan offered to a person in return of property documents where the lender will reserve the right to sell the property if the debtor doesn’t repay the loan amount on time. Reverse Mortgage is a special mortgage only available to senior citizens who are aged 60 and above. A person can avail this loan on his/her own house/property.

Any senior citizen who owns a house/property, and needs money while not being able to afford monthly/medical expenses may apply for a reverse mortgage. The amount of loan can be procured either as a lump sum or in monthly installments. This loan would be repaid if the borrower wishes to sell the house or the borrower pass away. The loan can be repaid by any source; mostly the house is sold and the amount is repaid to the lender/bank along with the interest. The rate of interest would be decided earlier during the agreement of reverse mortgage and the outstanding amount will be a liability of the borrower or the borrower’s legal heir(s)[in the case of death of borrower].

There is no fixed tenure for Reverse Mortgage. The loan continues as long as the borrower is alive or he wants to sell the house. In the case of the loan being dispensed in installments, even if the loan exceeds the house value, the borrower will continue to receive their monthly income.

Eligibility: Only senior citizens who are above 60 years of age and have their own house are eligible for a Reverse Mortgage. If there is more than one owner for the house then the youngest owner should be above 60 years.

Loan Amount and Rate of Interest: Mortgage amount depends on the house value and the age of the borrower. If the borrower is 65 years then the loan amount provided would be 60% of the house value. The interest rate will be decided by the lender which depends on the age of the borrower, would be paid while repaying the loan.

Types: There are three types. Line of credit, Lump Sum, and Combination. This totally depends on the borrower. They can access the loan however they wish to.

Lump Sum- If the borrower takes the money once at a time then it is called Lump sum. The value is decided by the Bank/Lender at the time of procurement and mostly depends upon the value of the property.
Line of credit- If the borrower chooses to have the money in monthly installments then it is known as Line Of Credit.
Combination- In the case of a combination, a fixed amount may be issued at the beginning and then some amount may be released per month.

Usage: The loan provided can be used for anything. It is completely up to the borrower. He can use it for personal expenses, monthly medical bills, house reconstruction or repairs.

Benefits:

  • This would help an elder person who is in need of money be it monthly expenses, medical bills or anything else.
  • At the time of sale, if the market value of the house is greater than the amount repayable, then this would benefit the borrower as well.
  • First borrowers do not have to pay the interest until the end and can stay in the same house with no anxiety.

Drawbacks:

  • Since the borrower doesn’t pay the interest, and the burden is put on the heirs, there would be a huge debt that would need to be cleared in the end and if the market value of the property doesn’t cover the amount returnable to lender/bank, this would create a big mess for both the parties.
  • Compared to the Forward Mortgage the Reverse Mortgages are lent at high rates of interest, to cover the risks involved.
  • Many of them don’t understand the concept of Reverse Mortgage and many lenders take advantage of this to claim extra money during the clearance of the loan.

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