A reverse mortgage loan is a collateral loan, generally secured by residential property. It serves the purpose of financing the needs of senior citizens. It is a unique credit option specially designed for senior citizens. The scheme does not require making monthly payments, instead, an individual needs to mortgage his or her residential property to avail of this loan. It provides an individual with an option to access the unencumbered value of a property. It is only repaid after the borrower sells the property, moves out of it, or passes away.
A reverse mortgage requires an individual to pledge the rights to his home to the lender in return for a regular income. Based on the market value and other essential factors, the banks and financial institutions disburse a loan amount to the customers. Having an overall overview of loan against property can also turn out to be helpful.
Features of the Reverse mortgage loan
1. Loan amount on the property
The loan amount against the property may differ in the different banks, but generally, it lies between 60% to 90% of the property. In some cases, the loan amount is restricted to a certain amount and it doesn’t exceed that amount. If the price of a home increases in value in the future, the person may consider refinancing his reverse mortgage to access even more loan proceeds.
Tenure or the time for which the senior citizen can avail the benefit of regular income against the property through the Reverse Mortgage loan lies between 10 to 15 years.
3. Interest rate
The interest rate on Reverse Mortgage is reasonably good and lies between 12% to 15%.
4. Financial assessment of borrower and valuation of the property
Banks and financial institutions assess the financial position of the borrowers. They look at the borrower’s income and obligations. The assessment determines whether a borrower holds the chance for the mortgage loan. Further, The valuation of property is done before the loan is sanctioned to the borrowers. The valuation of property depends on various factors like the market value of the property.
Benefits of Reverse Mortgage Loan
1. Tax exemption
The income the borrower receives from the bank, the amount used for repair of the house, and the repayment of the loan at the end of the loan term is exempted from the tax.
2. Several disbursement options
Reverse Mortgage loans provide various options for the disbursement of loans to cater to the needs of the senior citizens. Thus, a senior citizen can avail whatever disbursement options suit him.
3. Minimum Requirement for availing the loan
A reverse mortgage requires only a few basic requirements like including a minimum of 60 years of age and a residence with at least 20 years of permanent ownership.
4.Flexibility of use
Borrowers under Reverse Mortgage loans are provided with an option to use the loan for any purpose. The funds from the reverse mortgage loan can also be used to pay off the existing mortgage on the home.
5. No mortgage payments required
No monthly mortgage payments are required for as long as an individual is living in the home and continues to meet his obligations to pay the property taxes and homeowners insurance and maintain the property.
6.Helps the aging population
Reverse mortgage loans deal with the needs of senior citizens. It provides them with the option to provide money for meeting their financial requirements.