Reverse Mortgage Loan – How It Works?

The facility of a reverse mortgage loan was initiated in India in 2007. It is a unique credit facility which allows individuals above 60 years of age to meet living expenses post-retirement.

Reverse mortgage in India is a convenient credit facility which where borrowers mortgage their property and use its value to secure a steady source of income. This financing scheme is highly beneficial for senior citizens who are without a bankable income source and require other earning options to mitigate their expenses.

How does a reverse mortgage scheme work? 

Senior citizens, who possess a residential property, can use it as a mortgage to avail a loan against it. However, it does not work in the same way as a loan against property, where you avail a lump-sum amount which you need to repay within a pre-specified tenor.

In the case of reverse mortgage loan in India, the loan amount is meted out in these three ways –

• Lump-sum part payments
• Periodically
• Other periodic disbursal's as agreed by the mortgagor and the financier

Another feature which distinguishes it from a traditional credit facility is you are not liable to repay the loan during your lifetime. The concerned financial institution would sell the property only after the decease of the primary borrower or if the borrower and nominee move out of the property. However, owners of the property or their next in kin can decide to repay the loan if they want to retain it.

The loan quantum of a reverse mortgage credit depends on the following factors –

• The market value of the property at the time of application
• Age of the homeowner(s)
• Applicable interest rate
• Limits prescribed by the government on lending

There are other types of loan against property which you should know about before committing to a reverse mortgage loan.

Must Read : Reverse Mortgage Myths - Every Borrower Should Know Before Applying