Reverse Mortgage

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Reverse mortgage is a mortgage loan which is very popular among the retired professionals. The concept of reverse mortgage is quite new to India but it is extremely popular in the other developed countries such as United States of America, United Kingdom, and other European countries.

Reverse Mortgage allows the customer to transform the customer-owned home equity into cash and at the same time retain the possession of the mortgaged property. The reverse mortgage has a two-fold advantage - it helps as an extremely good resource for the planning pertaining to retirement and also acts as an investment in the real estate sector.

In India, reverse mortgage is still at a nascent stage. The concept of reverse mortgage provides the lender with the share of the house and the owner receives loan against the mortgage. The 'senior citizen' owning a property is the best candidate for the concept of reverse mortgage and it is also well-known among the older generation as a superb retirement solution. The loans provided are tax-free in nature and there are a lot of options on the method of receiving the loan. Customers may receive the loan as a lump sum or withdraw it monthly/annually from the concerned financial institution. Some financial institutions also provide the facility of an account in a commercial bank and several add-ons along with the account such as debit ATM card. The loan can be utilized for any kind of requirement of the customer.

The options for receiving the reverse mortgage:

  • A large chunk of the total sum in the starting
  • A monthly payment scheme until the term period of the loan is over
  • A set up which allows a credit line on which interest is either charged or not charged pertaining to the contract between the customer and the financial institution
  • A combination of all of the above options

The characteristics of the reverse mortgage would depend on:

  • The age of the customer borrowing the loan and the age of the co applicant if there is any, factors of life expectancy.
  • The present value of the property and the estimated rate of appreciation of the property, the factors driving the real estate market.
  • The present rate of interest and the fluctuation in the rate of interest, the factors affecting the financial market.
  • The options of floating or fixed rate of interest, interest bearing credit options, insurance on mortgage, if any.

Last Updated on 5/26/2011