A reverse mortgage is a custom-made financial arrangement designed to fulfil the funding needs of senior citizens. Homeowners above 60 years of age can utilise the equity value of their residential property to avail funds via this loan facility.
The initial principal limit available to a borrower is decided based on the current market value of the property, borrower’s age, the interest rate charged and the lender’s margin.
For instance, a residential property valued at Rs.1 crore is utilised for reverse mortgage funding, whereby,
The initial principal limit is calculated as a property’s market value less the lender’s margin. Here,
Initial principal limit = Rs.1 crore – 20% of Rs.1 crore = Rs.80 lakh.
This amount includes the total payment made to the borrower along with all lender charges like interest, processing fees, etc. Borrowers can avail this financial assistance either as a lump sum or periodically, i.e., monthly, quarterly, half-yearly or yearly.
Unlike a mortgage advance, a reverse mortgage loan does not create an immediate liability on borrowers. Lenders thus initiate loan recovery only after the borrower permanently ceases to reside in the property or decides to sell it, or on his/her demise.
With this understanding of what is reverse mortgage, check other essential details about the financing facility.
An individual needs to fulfil the following eligibility requirements to avail a reverse mortgage loan against his/her residential property’s equity value.
Here, income and repayment capacity of a borrower does not bear any consequence as all eligibility requirements are based on the residential property.
The working of a reverse mortgage loan is detailed below.
Keep the following documents handy when applying for a reverse mortgage loan.
The lender may ask you to provide additional document/s as and when required.
The fees and charges for the advance can vary from one lender to another. The common charges applicable include –
A reverse mortgage loan also involves timely payment of all premiums towards the home insurance policy.
Interest rates on reverse mortgage advances also vary from one lender to another. These rates are usually marginally higher than rates applicable to mortgage advances like home loans.
A borrower can choose a suitable interest rate regime from the fixed and floating options based on the market trends.
Tax-free earnings are one of the typical reverse mortgage benefits that retirees can enjoy. As per the Section 10(43) of the Income Tax Act 1961, the pay-outs received by a senior citizen, either as a lump sum or through periodic payments is not treated as an income. Hence, payments from the financing facility are non-taxable.
Take care to stay vigilant of any reverse mortgage scams with the following tips at hand –
When seeking funding, you can also look for alternative financing options like loan against property. These secured advances come with high-value funding and attractive features at competitive rates. Bajaj Housing Finance Limited brings Loan Against Property of up to Rs.3.5 crore for individuals with the right eligibility.
A reverse mortgage loan is a unique credit option specially designed for senior citizens. A borrower does not need to make monthly payments after availing this loan. A person needs to mortgage his or her residential property to avail this loan.
The loan does not require a person to make repayments every month. Instead, it is only repaid after the borrower sells the property, moves out of it or passes away.
With a reverse mortgage loan in India, receive the loan amount in the form of a monthly payment, as a lump sum or line of credit and meet your financial requirements.
Also Read: What are the Benefits of Reverse Mortgage
For a reverse mortgage, the finalisation of credit amount to be sanctioned is done based on the value of the house to be mortgaged. Keep the documents required for reverse mortgage loan handy before you apply for one.
Alternatively, Bajaj Finserv offers Loans Against Property for individuals looking to avail funds against their residential properties. They can avail this loan at competitive Mortgage Loan interest rates and other charges. Repay the dues conveniently throughout a flexible repayment tenure.
Applicants can avail high loan amounts of up to Rs. 3.5 Crore against easy to meet Mortgage Loan eligibility criteria and documentation. Know other eligibilities that qualify you to apply for this loan.
A Bajaj Finserv Loan Against Property also offers hassle-free loan disbursal, balance transfer facility, high-value Top Up Loan, online account management and many more features.
Apply for this loan with a simple online application form and get instant approval and disbursal within 4 days of approval.