Do you know Reverse Mortgage Loan or RML?
In the
short and simple understanding, reverse mortgage is a financial arrangement to
provide regular income to senior citizen. In our country the pension scheme has
transferred to defined contribution from defined benefit. Under defined
contribution pension schemes, the monthly or quarterly pension will depend on your
contribution during your working period and fund value at the time of
retirement.
In reverse
mortgage senior citizens will get cash at specified time interval income
against their home and they also allowed to live in their houses until death or
sale of the house property. They do not need pay back until specified time.
In
normal home mortgage the borrower paid back borrowed money with interest in the
form of EMI (Equated Monthly Instalments) to lender. In the reverse mortgage,
the lender make payment to the borrower and the loan amount gets accumulated.
It was
introduced in India at 2007. Some public sector banks like SBI, Central Bank of
India has introduced such product from 1st April 2008 under the guideline
issued by National Housing Bank (NHB). Some features are given below:
- Under RML the person above age 60 can avail payments in the predetermined period from a lender against their house as a mortgage and at the same time they can reside in their mortgaged home also.
- Senior citizen need not to pay back during their life time. As per current guideline the maximum period of the payments is 20 year and the payment will not exceed Rs 50,000 per month.
- Once the payment period is over, the payout will be stopped but the borrower and the spouse would be allowed to live in their mortgaged house. Upon their death, the first offer of sale of the house will be made to legal heirs. In case they are unable to repay the loan, the house would be sold by the lender. The lender would recovers due payment and pays to the balance amount to the legal heirs.
- Valuation of the residential property would be conducted in at least once in 5 years by the reverse mortgage lender.
- Foreclosure of the loan also possible but it attracts penalty also.
In these
days, at the time of retirement it is new tool available to the senior citizen
get cash income stream and they can also stayed in their mortgaged home. It is
ideal for those persons who is house rich and cash poor.
It is very
vast subject and not very popular in our country. The country’s largest life
insurance company LIC is also entering in the RML market. Now we can hope it
will reach to the maximum needy people.
If you want more information
regarding investment or you have any other query about investment feel free to
ask us.
Warm regards,
Arvind Trivedi
Certified
Financial Planner
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