Reverse Mortgage: Senior persons who require financial support with their everyday or medical expenditures might benefit from RML. Reverse Mortgage Loan (RML) is a financial instrument designed specifically for seniors to allow them to monetize their houses while maintaining ownership throughout their lives.
Home Loan vs Reverse Mortgage
It is the polar opposite of a home loan. The bank is the ‘real’ owner of the home under a home loan, and when you repay the loan, you become the actual owner of the house. Banks make cash to senior citizens in the case of RML. It can be paid in one big sum or in recurring installments, such as monthly or quarterly.
Contrasting Loan Structures
Another significant variation between home loans and reverse mortgages is that the borrower repays the loan amount in monthly installments with a home loan, whereas a reverse mortgage does not demand any immediate repayments. The bank recovers the loan amount and accumulated interest when the last surviving spouse dies or permanently relocates to a retirement home/relative’s home.
Some Major Points
- The principal borrower must be 60 years old to apply for RML, and the spouse must be 55 years old in the case of joint borrowing.
- Loan terms are normally between 10 and 15 years, depending on the age of the borrower.
- The loan is available for self-occupied residential property in India with no current loans.
- The loan-to-value ratio will be determined by the locality. In general, it is greater than 60%.
- The loan funds can be utilised for medical expenses, family emergencies, augmenting pension/other income, or any other legitimate reason. The loan cannot be used for speculative, trading, or business reasons.
- Loan payments are made on a regular basis, such as monthly, quarterly, semi-annually, and annually.
- Commercial properties are not eligible for the financing.
- The property should be relatively new, with a residual life of little more than 20 years.
- The RML is accessible for privately bought and occupied residential property. It cannot be a gift or an inheritance.
Why have reverse mortgages not taken off in India?
Reduced Ethnicity: The legal heir may not get the loan amount with interest as an inheritance because it is recovered from the sale of the property after the borrower’s death.
Cost: The charges and fees associated with reverse mortgage loans may be higher than those associated with standard loans.
Other expenses should be considered: Because the borrower is still the owner, you must pay property taxes, home insurance, and other maintenance costs.
Renovations require prior approval: To carry out extensions or renovations, the borrower must obtain clearance from the bank.
Complexity: For some people, the terms and conditions of RML can be confusing and difficult to grasp. As a result, people may need to seek legal advice before proceeding.
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