The concept, as well as schemes of a reverse mortgage, was introduced in India back in 2007. With a large number of Indian populace migrating to different cities or abroad for professional reasons, this scheme was targeted to aid the elderly left alone without financial assistance. Interestingly, a lack of understanding of this scheme has been a major deterrent in a number of people opting for these loan schemes.
What Is A Reverse Mortgage Loan?
Reverse mortgage loans, as the name suggests, is a secured loan. However, in the case of this loan, a borrower does not have to repay in monthly EMIs. In the case of these types of loans, financial institutions pay a sum of money to the borrower at regular intervals or in lump sum against the mortgaged property. This payment can be monthly, quarterly, half-yearly or annually.
Like different loan against property schemes offered by various financial institutions, a property of the borrower is used as a mortgage in case of such loans. The primary difference lies in the repayment structure of these lines of credit. In these cases, borrowers do not have to worry about repaying the loan during the tenor.
Borrowers need not repay the reverse mortgage loan and the funds will be realized from the sale of the property after the death of the borrower or when the house is vacated.
Pros Of Reverse Mortgage Schemes
Since this scheme is designed for senior citizens, the benefits are very specific. Additionally, the eligibility criteria also restrict any individual who is not nearing the retirement age from applying for a reverse mortgage scheme.
- Immediate Financial Assistance: Senior citizens might require immediate financial assistance after their retirement to maintain their lifestyle and living habits. Usually approved within 48 hours, these loans offer help to meet the monetary needs of asset-rich retirees with low cash at hand.
- No-Risk Of Defaulting: Reverse mortgage loan in India has no risk of default. Even in the case of a borrower’s demise, the mortgaged property can be used for repayment.
- Minimal Requirements: Generally, mortgage loans have numerous requirements including CIBIL scores, different documents, etc. While it is vital for applicants to understand how credit score affects loan against property eligibility, in the case of reverse mortgages, the CIBIL score is not too important.
Cons Of Reverse Mortgage Loans
Despite the numerous benefits offered under these schemes, a few drawbacks are also associated with them. Reverse mortgage India can spell difficulty especially if an individual wants to pass that property on to an heir.
Under such circumstances, it can be even more difficult to repay the amount of the property value goes up. While generally financial institutions allow a surviving spouse to live on the property, the monthly payments are discontinued.
In case the surviving spouse or heir wants to clear the debt on this property, a high sum might have to be paid towards debt repayment. Consequently, it can be a much better option to plan the financials ahead and opt for other loan schemes that do not pose such a threat.
Opting for high-value lines of credit like loan mortgage loans can allow senior citizens to opt for secure investment options. Unlike in the case of reverse mortgages, here with monthly EMI clearances, a borrower can ensure that their mortgaged property is safe. Even the application procedure offered by financial institutions is usually convenient.
HFCs even provide pre-approved offers that make availing loans quick and easy. Pre-approved offers are available on numerous financial products like business loans, home loans, personal loans, etc. You can check your pre-approved offer by providing your name and phone number.
Any senior citizen considering to opt for such secured lines of credit should learn all the benefits offered on them. While a loan against property generally offers more benefits than reverse mortgage loans, it is important to understand the schemes before applying for them.
Additionally, it is also important for them to know of the things to avoid when availing of a loan against property. It is advisable to plan the repayment ahead of application.