All individuals while in active service/profession set aside a portion of their income and invest it in various assets, such as bank deposit, mutual funds, gold or house property. These savings and their returns not only help in leading a more comfortable life but also supports in meeting large expenditures such as higher education of children, marriage etc. as well as unforeseeable ones like serious ailments. The adequate availability of savings is all the more important to an elder person who is retired from active service.
Among the various asset classes into which a person divides his savings, one would agree bank FDs, Mutual Funds or gold are liquid and can be easily converted to cash when needed. The house property, which provides shelter, cannot be so disposed of without causing serious hardship to self and family. Senior Citizens having inadequate income and low social security often face difficult choices when they have to meet financial needs of renovation or repairs to property, medical and other personal expenses – can resources be raised from their house while they continue to own and live in it.
Reverse Mortgage Loan (RML) being offered by banks is just the kind of product to ease this type of financial difficulties faced by senior house owners.Reverse Mortgage helps you, receive money against your house / property, while you still live in it.
Conditions for availing Reverse Mortgage Loan (RML)
- RML can be availed by persons aged 60 years or more,
- This is allowed only for self- owned and occupied house/property. Joint ownership (except with spouse), HUF owned or rented properties cannot be used for RML.
- The loan can be taken in owner’s single name or jointly with spouse.
- The mortgage will be closed by the bank only on completion of the agreed tenure of loan, or foreclosed, on death of both the owner and the surviving spouse. In case the owner moves out during the tenure of the loan, the mortgage will be closed by the bank.
- There is no compulsion on the owner to make any repayments towards the loan during the tenure of the loan.
- Even on foreclosure before full tenure, due to owner’s death, banks will give opportunity to legal heirs to repay the mortgage before auctioning the property.
- You can choose to obtain disbursement in monthly or quarterly installments or a lump sum.
- The money that can be raised under RML depends on
- The tenure of the loan – banks allow tenures of upto 15 years.
- Prevailing rate of interest and
- Current Market Value of the property.
The loan amount will be 90% of the Current Market Value, discounted at the prevailing rate of interest. For example, if on the basis of Current Market Value, your loan amount is Rs. One crore and rate of interest is 11.45% p.a. you can expect to receive funds equal to:
For a 10 year tenure
- Rs 32,30,000 in case of lump sum payment or
- Rs 44,800/- per month for 10 years or
- Rs 1,34,600/- per quarter for 10 years
For 15 year tenure
- Rs 18,27,000/- in case of lump sum payment or
- Rs 21,000/- per month for 10 years or
- Rs 63,200/- per quarter for 10 years
How to Avail a Reverse Mortgage Loan
A reverse mortgage loan is offered by most Public sector and private sector banks.
Documentation required for obtaining a Reverse Mortgage Loan are:
- Complete House Ownership documents
- KYC documents (eg Passport, Aadhar card, Driving Licence, Ration card)
- Declaration mentioning legal heirs.
- Live certificate needs to be completed every year post taking the loan
Talk to your banker today if this product fits your needs. Read on to find out if RML is the product for you.Do reach out to us if you have any further queries.
About the Author
Mr. Akhilesh Mohan is a retired DGM of a public sector bank and currently settled in Gurgaon.