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Louis Said:

plz tell me about reverse mortgage in indian banks?

We Answered:

"The concept of reverse mortgage, although new in India, is very popular in countries like the United States. Recently, National Housing Bank (NHB), a subsidiary of the Reserve Bank of India (RBI), released draft norms of reverse mortgage (the final guidelines are awaited). Following are some of the key features of the scheme from the draft norms.

1. As per the norms, a house owner who has crossed 60 years of age is eligible to seek a loan of upto 60% of the value of residential property by mortgaging the same (for the maximum period of 15 years) with a bank/HFC, while retaining the right to stay in the property. The borrower i.e. house owner is not required to pay back the loan amount.

2. In terms of receiving the loan amount, the borrower can opt for monthly, quarterly, annual or lump sum payments or payments at any other point in time as per his discretion. Also, a revaluation of the property has to be under taken by the bank/HFC once every 5 years. Consequent to the revaluation, necessary changes will be made to the loan amount. However, the bank/HFC will have the discretion to decide the mode of payment of loan and to determine the tenure of the loan, depending on factors like the state and market value of the property and age of the borrower, among others.

3. The borrower can use the loan amount for various purposes like renovation and extension of the residential property, maintenance/insurance of the residential property and family's medical or emergency expenditure, among others. However, the loan amount cannot be used for any speculative or trading purposes.

4. The interest rate on the reverse mortgage will be determined by the bank/HFC based on the risk perception and loan pricing policy, among others. Fixed and floating rate of interest may be offered, subject to a transparent disclosure of the terms and conditions to the borrower.

5. The lender will recover the loan along with the accumulated interest by selling the house after the death of the borrower or earlier, if the borrower leaves the mortgaged residential property permanently. Any excess amount will be remitted back to the borrower or his heirs. However, before resorting to sale of the house, preference will be given to the owner or his heirs to repay or prepay the loan amount, along with the interest, and to get the mortgaged property released.

6. The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.

As the cliched saying goes,"there are no free lunches in life". In case of reverse mortgage, there exist a few guidelines, which may not 'appeal' to the house property owner i.e. the borrower.

1. As per the guidelines, the maximum loan tenure can be 15 years. So, if the borrower outlives the loan tenure, he can continue to stay in the house. However he will no longer be eligible for any payments from the bank/HFC.

2. The bank/HFC shall have the option to revise the periodic/lump sum amount at such frequency or intervals based on revaluation of property, or at least once every 5 years. The borrower will be provided the option to accept the revised terms and conditions to continue the loan. However, if he refuses to accept the revised terms and conditions, no further payments shall be made by the bank/HFC. Interest at the rate agreed before the review will continue to accrue on the outstanding loan amount.

3. Since the reverse mortgage can be either at fixed or floating rates, it will be prone to the interest rate movements. Hence, in the scenario when interest rates are moving northwards, a floating rate reverse mortgage would add to the borrower's liability.

4. Under the reverse mortgage, the legal heirs of the owner are not entitled to take control over the mortgaged property upto the extent of the outstanding loan. They are required to first repay the outstanding loan amount along with the interest to stake a claim on the property.

5. The banks/HFCs at their discretion may levy penalty or other charges on the prepayment of loan. So, if the borrower or his heirs wish to prepay the loan amount, they may have to bear an additional cost.

The most important advantage offered by the reverse mortgage scheme is that despite mortgaging the house, the house owner retains its ownership, is entitled to live in the same throughout his lifetime and also has access to a regular income stream, which can help meet his day-to-day needs. From the bank's/HFC's perspective, the mortgage on the property in its favour ensures that there is no scope for default.

Having said that, individuals who wish to opt for the reverse mortgage scheme would do well to acquaint themselves with the nitty-gritties of the guidelines. Also, the final guidelines will aid in providing more clarity to individuals who wish to participate in the reverse mortgage scheme. "

Harvey Said:

What is a reverse mortgage and what banks issue them?

We Answered:

A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.

Renee Said:

what are the details of reverse mortgage system in banks to help parents with fixed assets?

We Answered:

Reverse Mortgage is just opposite to mortgage.

In a mortgage :-
You take away money from Bank(s) as loan keeping the mortgaged property, the House / flat, and repay the same in next 15 yrs (say). Till you repay the loan, you are not the owner.

In reverse mortgage :-
You are the owner of a House / flat and approach the Bank for a loan (the entry age may be 60 yrs or like).
The bank starts giving you money every month for next 15 yrs. In the end, you repay the loan or ask the legal hairs to repay the same. They either repay the loan and take back the property or the Bank sells it in the market, take its full amount with up-to-date interest and deposit the rest in the name of the legal hairs in case of death of the owner.

Thus the elderly people is helped with their hard earned Fixed Asset in a time when their earning potential is either NIL or very meagre.

Manuel Said:

is reverse mortgage loan against house property still available and which banks provide?

We Answered:

State Bank Of India is giving the reverse mortgage loans. Approach them!

Rita Said:

What is reverse mortgage in banking terminology?

We Answered:

A reverse mortgage is a mortgage in which the borrower is making monthly payments that are smaller than the interest on the loan. So instead of the principal balance decreasing over time, it is increasing. When the borrower dies, the house is sold and the mortgage company gets the higher principal balance.

Reverse mortgages are typically sold to older people who have equity in the house that they can pull out in cash. They may want to use money from their equity while they are still alive instead of leaving a lot of equity in the house when they die.