A reverse mortgage loan (RML) is exceptionally for those looking for additional funds but don’t have the means to repay. A reverse mortgage can help with the same as it does not require borrowers to repay their loans immediately.
Borrowers have the flexibility to choose from multiple disbursal frequency, which can be:
- Lump-sum amount
- Monthly
- Quarterly
- Yearly
Availing the funds in periodic payments are also known as reverse EMIs. In such cases, the payments will be distributed over the loan’s tenure, which can stretch over 20 years. Reverse mortgages are similar to loans against property in this case.
However, borrowers don’t have to make any repayments during this tenure, unlike a loan against property.
Who Can Opt For A Reverse Mortgage Loan?
In India, a reverse mortgage is only available to senior citizens aged 60 years or above. A co-applicant in such cases must be aged 58 or above.
Points To Consider Before Availing A Reverse Mortgage Loan
Senior citizens opting for a reverse mortgage in India also have to consider a few points before applying:
1. Pass The Property To Their Children
A reverse mortgage will become due when the last surviving borrower passes away. In such cases, lenders have the right to take ownership of the property.
Hence, senior citizens should only avail of a loan if they don’t want to pass the property to their children. In several cases, the children may also not want the house if they live abroad.
Although, lenders will provide the option of loan settlement to the legal heirs of a borrower before taking ownership of their property. They will seize the house if the heirs fail to repay the loan. The lender will transfer any incremental amount to the heirs if the sale price is higher than the loan.
Availing a loan against property is more beneficial here as borrowers get to keep their property provided they don’t default on it. There are various ways borrowers can effectively repay their loans to ensure the same.
2. Occupy The Property Until Their Demise
Lenders will ask borrowers to foreclose the loan if they have not occupied it for more than a year. Homeowners may be forced to vacate their homes if they become critically ill. In such cases, they may have to move in with their children to avail of care.
Hence, borrowers must only apply for a reverse mortgage scheme if they are sure of occupancy for a prolonged period. Not occupying the property for the specified period makes their loan due. And, failure to repayment causes the lender to seize it.
On the other hand, non-occupancy does not affect a loan against property. Applicants must also consider a few points while opting for these loans.
3. Renting Out the Property
A reverse mortgage will be due if the borrower chooses to rent out his/her house either partially or entirely. Homeowners may opt to do so in case they seek extra income.
4. Pay Property Tax Regularly
Reverse mortgage borrowers must also make sure to pay property taxes regularly. Failure to pay the tax will also trigger a foreclosure.
5. Avail Home Insurance Mandatorily
It is mandatory for all reverse mortgage loan borrowers to avail of home insurance. Not buying home insurance also makes the loan due.
On the other hand, home insurance is not mandatory in case of loans against property. However, availing an insurance policy keeps a borrower on the safe side.
NBFCs like Bajaj Finserv provide Loans Against Property, which can prove more beneficial. Applicants can avail up to Rs. 3.5 Crore with tenures up to 20 years and avail the funds within 4 days.
Bajaj Finserv also brings pre-approved offers that simplify the process of availing loans and helps save time. Pre-approved offers are available on personal loans, business loans along with secured loans like home loans, and several other financial products.
6. Using the funds Responsibly
Borrowers also have to use the funds and not fall into temptation. They may seek to invest it in schemes with high ROI. Losing their money in such schemes can force them to bankruptcy, which can also trigger a loan foreclosure.
Applicants must consider the points mentioned above before opting for a reverse mortgage loan. They must also compare the available loan options thoroughly before applying.