How Reverse Mortgage Works?The property must be loan free and must be registered in the name of the borrower or his/her spouse for them to get a reverse mortgage loan. A reverse mortgaged house cannot be given on rent. The property is taken over as collateral by the financial institution offering a reverse mortgage. Depending on the lender policies, the loan amount could range from 40-90% of the market value of the property. Payments could be received as a lump sum or a stream of monthly/quarterly/annual payments.
The borrower and the spouse can continue to live in the house as long as they are alive. After the demise of the borrower and the spouse, the bank is free to sell the property and recover the loan amount. The remaining amount is paid to the legal heirs. The legal heirs can take possession of the house after clearing the loan dues.
Calculation of Monthly PaymentsLet us understand the calculation of monthly payments with an example:
Mr. Mehta has a house worth Rs. 1 crore, and he wants to mortgage it for 15 years. The bank that he approaches for the reverse mortgage loan offers the loan at Loan-to-Value (LTV) ratio of 80% at 12% interest rate. So, Mr. Mehta will receive Rs. 15,855 monthly on Rs. 80,00,000 for 15 years.
This calculation is based on the assumption that if Mr. Mehta were to invest Rs. 15,855 monthly for 15 years at 12% he would accumulate a corpus close to Rs. 80,00,000.
Utility of Reverse Mortgage for Senior CitizensOften senior citizens may find themselves without adequate income flow; in such a scenario reverse mortgage for senior citizens can be of great benefit. A house can become a source of regular income and this asset instead of being a dead one can provide them running income.
Though this product is yet to catch-up in India, it could offer senior citizens running income without being forced to leave their homes or compromise their dignity.
Click here to visit our Retirement Planning Calculator
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
Disadvantages of Early Retirement - What Happens When You're Not Working?
Early retirement seems to be good, many people enjoy life without working especially with extra earnings. But they are not aware about the cons. Lets explore the disadvantages of retiring early to save your retirement life.
5 Benefits of Health Insurance that Makes it a Must Have Cover
Here are the 5 benefits of health insurance that makes it a must to cover
When Should You Withdraw Money from a Mutual Fund?
In case of a sudden change in fund strategy or an underperformance scheme for more than 3-4 years, it makes sense to withdraw money.