This is not the ‘margin’ you normally associate with a bank loan product, where you provide your stake capital or risk capital for the loan. Here, margin component is meant to convey that a certain portion of the value of the property arrived at will be deducted towards margin and the loan will be based on the value of the property thus arrived.
In this system, the interest rate is initially offered for a limited number of years governing the loan. Thereafter, the interest rate is re-fixed or re-set (mostly it is a marginal rise in ROI) for another fixed period of the loan tenure. The bank gives the borrower the option to agree to the interest re-set or close the loan.
Reverse mortgage does not require income or credit history of the borrower as repayment is based on the value of the house owned by the borrower. The amount received from the lender is not taxable, as the same is considered as loan and not income.