FAQs on Re­verse Mort­gage

Re­serve Mor­gage aims at par­tially meet­ing the fi­nan­cial needs of se­nior cit­i­zens with­out sell­ing the prop­erty and en­ables re­cur­ring funds in­flows to the se­nior cit­i­zens dur­ing their life time. After the death of the se­nior cit­i­zen, the sur­viv­ing spouse ca

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Re­verse mort­gage is a fi­nan­cial prod­uct that en­ables se­nior cit­i­zens who own a house to mort­gage their prop­erty with a lender and con­vert part of the home eq­uity into tax-free in­come with­out hav­ing to sell the house. In­stead of you mak­ing monthly pay­ments to a lender, as with a reg­u­lar loan, the lender makes pay­ments to you. Many op­tions are avail­able for re­pay­ment of the loan in lump­sum at the end of the loan term. Max­i­mum pe­riod of loan is of 20 years. The loan is not re­quired to be ser­viced as long as the bor­rower is alive and in oc­cu­pa­tion of the prop­erty. On the bor­rower’s death, the loan is re­paid through sale of prop­erty.

Q. 1. What is re­verse mort­gage?

When you buy a house through a home loan, ev­ery EMI you pay to­wards ser­vic­ing the loan in­creases your eq­uity in the house. Once you pay­off the loan in full, your eq­uity in the house is 100 per cent. In re­verse mort­gage, ex­actly the op­po­site hap­pens. When you pledge your house for re­verse mort­gage with a lend­ing in­sti­tu­tion, your eq­uity in your own house de­creases with ev­ery dis­bur­sal that the lend­ing in­sti­tu­tion makes to you.

Q.2 Which in­sti­tu­tions of­fer re­verse mort­gage as a prod­uct in In­dia?

Re­verse mort­gage as a prod­uct is fairly new to In­dia. De­wan Hous­ing Fi­nance was the first in­sti­tu­tion in the coun­try to come up with its re­verse mort­gage prod­uct-Sak­sham. Since then, most lead­ing lend­ing in­sti­tu­tions have come up with their own re­verse mort­gage prod­ucts. Some of th­ese are State Bank of In­dia, Pun­jab Na­tional Bank, Bank of Bar­oda, Cen­tral Bank of In­dia, Union Bank of In­dia, LlC Hous­ing Fi­nance, In­dian Bank, Andhra Bank, Cor­po­ra­tion Bank and Ca­nara Bank.

Q.3 What is the el­i­gi­bil­ity cri­te­ria for re­verse mort­gage?

First, Sec­ond you need to have 100 per cent eq­uity in your should be more than 60 years of age. If your wife is a co-ap­pli- cant, she should be above 58.

Q.4 How do I ap­ply for re­verse mort­gage?

Once you de­cide to pledge your house for re­verse gage, you should ide­ally go to the branch of the bank with which you have a bank­ing re­la­tion­ship and fill up the nec­es­sary form–pro­vided the bank of­fers-re­verse mort­gage. If your bank does not of­fer re­verse mort­gage, then ap­proach the near­est branch of a bank that does, and fill up the form. You will need to fur­nish your per­sonal and fi­nan­cial de­tails: de­tails about The prop­erty, your le­gal heirs, and so on. To au­then­ti­cate that you own that the prop­erty, you will also need to fur­nish prop­erty pa­pers and a proof that

Most re­verse mort­gage loan prod­ucts avail­able have a max­i­mum ten­ure of 15 years, with a min­i­mum ten­ure of 10 years. How­ever, RML prod­ucts of cen­tral Bank of In­dia and Bank of Bar­oda can be ex­tended fur­ther, to the ad­vance value of the prop­erty. In case of Cen­tral Bank of In­dia, the loan can be fur­ther ex­tended by another five years. Pun­jab Na­tional Bank is the only in­sti­tu­tion that of­fers RML for 20 years.

the house that you are pledg­ing is your res­i­dence.

Q.5 How does the lend­ing in­sti­tu­tion ar­rive at the amount that would be dis­bursed un­der the re­verse mort­gage prod­uct?

The qual­i­fy­ing amount of loan will de­pend on the re­al­is­able value of your prop­erty after main­tain­ing a mar­gin. This mar­gin cov­ers the rate of in­ter­est on the loan and any pos­si­ble fluc­tu­a­tions in the value of the prop­erty pledged for re­verse mort­gage. The value of the prop­erty is eval­u­ated ev­ery 3-5 years, de­pend­ing on the lender, and this will af­fect the amount of funds be­ing re­leased to you as per the pay­ment plan you choose.

Q.6 What are the pay­ment op­tions that lend­ing in­sti­tu­tions pro­vide un­der re­verse mort­gage?

The money can be cred­ited into your sav­ings bank ac­count or in a joint ac­count-with the ei­ther or sur­vivor op­tion-in the same bank ei­ther on a monthly or quar­terly ba­sis, or as a one-time lump sum pay­ment.

Q.7 What is the rate of in­ter­est on the amount that the bank sanc­tions un­der re­verse mort­gage?

The rate of in­ter­est on the re­verse mort­gage loan typ­i­cally varies be­tween 10 per cent and 12 per cent. How­ever, you will not be re­quired to pay this in­ter­est. Once you va­cate the premises per­ma­nently, or in the event of your death, the lend­ing in­sti­tu­tion will give the first op­tion to the le­gal heirs of the prop­erty to set­tle the loan. If they are un­able to set­tle the loan, the lend­ing in­sti­tu­tion will sell the prop­erty and, from its pro­ceeds take its share-prin­ci­pal, i.e., the to­tal amount dis­bursed as loan and the in­ter­est on it-and give the to the le­gal heirs.

Q.8 Is there a pro­cess­ing fee?

Yes, There is a pro­cess­ing fee. This typ­i­cally varies be­tween 0.15 per cent and 1.50 per cent of the loan amount. In some cases, apart from spec­i­fy­ing the per­cent­age of loan amount as pro­cess­ing fee, they also have an up­per limit as to how much they can charge as pro­cess­ing fee.

Q.9 What is the max­i­mum pay­ment ten­ure that a lend­ing in­sti­tu­tion of­fers un­der re­verse mort­gage?

Most re­verse mort­gage loan prod­ucts avail­able have a max­i­mum ten­ure of 15 years, with a min­i­mum ten­ure of 10 years. How­ever, RML prod­ucts of cen­tral Bank of In­dia and Bank of Bar­oda can be ex­tended fur­ther, to the ad­vance value of the prop­erty. In case of Cen­tral Bank of In­dia, the loan can be fur­ther ex­tended by another five years. Pun­jab Na­tional Bank is the only in­sti­tu­tion that of­fers RML for 20 years.

Q.10 Can I pre­pay the amount that the lend­ing in­sti­tu­tion dis­burses un­der re­verse mort­gage?

Is there a pre-pay­ment penalty? Yes, you can pre­pay the loan along with the in­ter­est any time dur­ing the loan ten­ure. Typ­i­cally, there is no pre-pay­ment penalty.

Q. 11 Is the rate of in­ter­est on the RML and the value of the house fixed for the en­tire ten­ure or are they re­vised at reg­u­lar in­ter­vals?

Con­sid­er­ing that real es­tate, like any other as­set class, passes through cy­cles and the cost of funds for lend­ing in­sti­tu­tions also keep chang­ing, most lend­ing in­sti­tu­tions have a re­set clause in the their re­spec­tive RMLs. This is to en­sure that at no point dur­ing the loan ten­ure, the loan to value ra­tio ex­ceeds the max­i­mum un­lock able value of the mort­gaged prop­erty. How­ever, this re­set clause varies across in­sti­tu­tions. While most lend­ing in­sti­tu­tions have a re­set clause of five years, Cen­tral Bank of In­dia and De­wan Hous­ing Fi­nance have a re­set clause of three years. So, after the sched­uled pe­riod, both the value of the house as well as the rate of in­ter­est will be re-eval­ued and nec­es­sary ad­just­ments will be made in your monthly pay­ments.

Q. 12 What if I out­live the ten­ure? Can I still stay in my house?

In case you out­live your loan ten­ure, you will con­tinue to live in your house. How­ever, the lend­ing in­sti­tu­tion may stop the monthly pay­ments to you if the un­lock able value of the prop­erty has al­ready been ex­hausted.

Q.13 When will the lend­ing in­sti­tu­tion take my house?

After your death, or if you have per­ma­nently moved out of the prop­erty, the bank will first give your le­gal heirs an op­tion to set­tle the loan. In case of a joint loan, it will be­come due for re­cov­ery and payable six months after death of the last sur­viv­ing spouse,

Q.14 How does the lend­ing in­sti­tu­tion re­cover the money that it has given me un­der re­verse mort­gage?

If your le­gal heirs can­not set­tle the re­verse mort­gage loan, then the prop­erty will be sold off and after re­al­iz­ing its money (to­tal ad­vances and the ac­cu­mu­lated in­ter­est), the bank will pass on any sur­plus to your le­gal heirs.

Q. 15 When does it make sense to opt for re­verse mort­gage?

Re­verse mort­gage should ide­ally be used to aug­ment one’s in­come in the golden days in the re­tire­ment years. It should ide­ally be the last re­sort to make good of the short­fall in funds in your re­tire­ment years.

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