A reverse mortgage is a loan against the home, which is not required to be paid back as long as the person lives there. With a reverse mortgage, a person can turn the value of his home into cash without having to move or repay the loan each month.
The money may be received in several ways from a reverse mortgage, as mentioned below:
- All at once, in a lump sum of cash or a regular monthly cash advance.
- A “credit line” account lets the person decide when and how much of his available money is paid to him.
- As a combination of these payment methods.
The person must own the home to be eligible for a reverse mortgage.
How does Reverse Mortgage work?
Reverse mortgage loans typically require no repayment for as long as the people live in the home. But the loan must be repaid in full, including all interest and other charges, when the last living borrower dies, sells the house, or permanently moves away.
Because the borrower makes no monthly payments, the amount owed grows more significant over time. As the debt becomes higher, the amount the person would have left after selling and paying off the loan generally becomes smaller. But the person would never owe more than the home’s value when the loan is repaid.
Reverse mortgage borrowers continue to own their homes. So they are still responsible for property taxes, insurance, and repairs. If the person fails to carry out these responsibilities, the loan could become due and payable in full.
Eligibility Criteria for Reverse Mortgage
The eligibility criteria for a reverse mortgage loan in India are:
- The borrower should be a citizen of India.
- The person should have a minimum age of 60 years.
- Married couples can jointly apply for the loan, given that one has to be more than 60 years of age and the other should not be below the age of 55.
- The borrower must be the owner of a self-acquired, inherited, or self-occupied residential property in India. The property title should indicate the borrower’s ownership and must be free from liability, debt, or other obligations (i.e., encumbrances).
- Residential property (house or flat) should be located in India.
- The residual life of the property should be at least 20 years.
- The prospective borrower(s) should use that residential property as a permanent primary residence.
Reverse mortgages can be a helpful way for senior citizens to supplement their income, but they also come with some risks. Borrowers should understand the terms and conditions before taking out a reverse mortgage. The most important thing to remember about reverse mortgages is that they are loans, and like any other, they must be repaid. If borrowers don’t make their payments, they could lose their homes.