Reverse Mortgage: Encash Your Property In Retirement

All of us need a regular income during retirement, and that is why it is very important to make regular investments throughout one’s working life. Interestingly, if one has a home, one can also leverage it to get a regular income during retirement, through a reverse mortgage. Also Read: How Can You Use Your Senior Citizen Parents’ Medical Bills, Insurance Premiums To Save Tax? A reverse mortgage loan is a financial product intended for senior citizens (60+ years) who own a house. It allows them to alter a part of their home equity into liquid cash without having to sell off their property. “Typically in a reverse mortgage loan, the borrower keeps receiving regular payments from the lender that can either be on a monthly basis or a lump sum handed out as decided upon the period,” says Atul Monga, CEO, Basic Home Loan.   Let us understand how reverse mortgage works in greater detail. Let's say you have a house that you want to use as collateral to avail of a reverse mortgage loan. The bank will send a person to determine the value of your house. The loan amount you receive will depend on the value of the property. Normally banks will give you a loan of up to 80 per cent of the property’s value. So if your home is worth Rs 50 lakh, you will receive a loan of Rs 40 lakh.   However, unlike a traditional loan, the loan is not paid to you upfront. Rather it is paid to you in monthly installments for the loan which can be 15 or 20 years.   Since the bank has given you a loan it charges you an interest on the amount it pays out to you every month. So as you receive more payments, the total interest on the loan also goes up. The interest is deducted from the total loan amount to decide on the monthly payout.   When the loan tenure ends, the payouts the bank is supposed to make to you will come to an end. However, you do not need to repay the loan. Also, you can continue to stay in the property.   Suppose a 65-year-old individual or a couple owns a house worth Rs 2 crore. They can easily opt for a reverse mortgage loan and receive, say Rs 45,000 a month from the lender. “So, one can continue to reside in the property, and the loan, along with the interest gets repaid when the house is sold off after their demise or they choose to move out of the same. And, if the house gets sold off for more than the amount of the loan, the excess amount passes on to the heir,” says Monga.   “If Mr. X and Mrs. X have their own house and do not have any income source or anyone who can take care of day-to-day expenses or medical expenses they can approach any nationalized bank where they can mortgage their house and avail this facility,” says Chintamani Kalburge, head - operations, LoanTap, a personal loan platform.  

Should You Opt For A Reverse Mortgage Loan 

It depends from one customer to another, but opting for a reverse mortgage loan can be a good option in terms of ensuring regular income for senior citizens. Such a financial tool easily allows them to tap into their home equity without selling off their property and of course, ensuring financial security during the retirement period.   However, weighing the pros and cons is pretty much necessary including aspects like impact on inheritance and long-term expenses.  

Understand The Pros And Cons 

A reverse mortgage loan enables house-owning senior citizens having inadequate income to meet their financial needs for renovation/repairs to the house, medical, and other personal purposes. A borrower does not have to repay a reverse mortgage loan during his or her lifetime or till such time he or she continues to stay in the house. So the senior citizens can retain the property as long as they are alive. So, if one has a house property it can take care of retirement expenses to a large extent.   “The amount availed under a reverse mortgage loan may be utilized for any purpose other than investing in shares, real estate, trading, etc,” says Kalburge. Also Read: UPI Transfers: Here’s How You Can Recover Money Sent To Wrong UPI ID However, on the flipside one needs to remember that the maximum term for a reverse mortgage is 20 years and the facility is available only for self-acquired property, not for ancestral property. Also, as the loan amount must be repaid from the sale of the property (that is mortgaged), heirs may inherit less. Further, parents feel that they should leave something for their kids, in the case of a reverse mortgage, that is not possible, so it is an emotional decision to take which may be difficult for many.