When you buy a house through a home loan, every EMI you pay towards servicing the loan increases your equity in the house. Once you payoff the loan in full, your equity in the house is 100 per cent. In reverse mortgage, exactly the opposite happens. When you pledge your house for reverse mortgage with a lending institution, your equity in your own house decreases with every disbursal that the lending institution makes to you.
Q.2 Which institutions offer reverse mortgage as a product in India?
Reverse mortgage as a product is fairly new to India. Dewan Housing Finance was the first institution in the country to come up with its reverse mortgage product-Saksham. Since then, most leading lending institutions have come up with their own reverse mortgage products.
Some of these are State Bank of India, Punjab National Bank, Bank of Baroda, Central Bank of India, Union Bank of India, LlC Housing Finance, Indian Bank, Andhra Bank, Corporation Bank and Canara Bank.
Q.3 What is the eligibility criteria for reverse mortgage?
First, Second you need to have 100 per cent equity in your should be more than 60 years of age. If your wife is a co-applicant, she should be above 58.
Q.4 How do I apply for reverse mortgage?
Once you decide to pledge your house for reverse gage, you should ideally go to the branch of the bank with which you have a banking relationship and fill up the necessary form–provided the bank offers reverse mortgage. If your bank does not offer reverse mortgage, then approach the nearest branch of a bank that does, and fill up the form. You will need to furnish your personal and financial details: details about The property, your legal heirs, and so on. To authenticate that you own that the property, you will also need to furnish property papers and a proof that the house that you are pledging is your residence.
Q.5 How does the lending institution arrive at the amount that would be disbursed under the reverse mortgage product?
The qualifying amount of loan will depend on the realisable value of your property after maintaining a margin. This margin covers the rate of interest on the loan and any possible fluctuations in the value of the property pledged for reverse mortgage. The value of the property is evaluated every 3-5 years, depending on the lender, and this will affect the amount of funds being released to you as per the payment plan you choose.
Q.6 What are the payment options that lending institutions provide under reverse mortgage?
The money can be credited into your savings bank account or in a joint account-with the either or survivor option-in the same bank either on a monthly or quarterly basis, or as a one-time lump sum payment.
Q.7 What is the rate of interest on the amount that the bank sanctions under reverse mortgage?
The rate of interest on the reverse mortgage loan typically varies between 10 per cent and 12 per cent. However, you will not be required to pay this interest. Once you vacate the premises permanently, or in the event of your death, the lending institution will give the first option to the legal heirs of the property to settle the loan. If they are unable to settle the loan, the lending institution will sell the property and, from its proceeds take its share-principal, i.e., the total amount disbursed as loan and the interest on it-and give the to the legal heirs.
Q.8 Is there a processing fee?
Yes, There is a processing fee. This typically varies between 0.15 per cent and 1.50 per cent of the loan amount. In some cases, apart from specifying the percentage of loan amount as processing fee, they also have an upper limit as to how much they can charge as processing fee.
Q.9 What is the maximum payment tenure that a lending institution offers under reverse mortgage?
Most reverse mortgage loan products available have a maximum tenure of 15 years, with a minimum tenure of 10 years. However, RML products of central Bank of India and Bank of Baroda can be extended further, to the advance value of the property. In case of Central Bank of India, the loan can be further extended by another five years. Punjab National Bank is the only institution that offers RML for 20 years.
Q.10 Can I prepay the amount that the lending institution disburses under reverse mortgage? Is there a pre-payment penalty?
Yes, you can prepay the loan along with the interest any time during the loan tenure. Typically, there is no pre-payment penalty.
Q.11 Is the rate of interest on the RML and the value of the house fixed for the entire tenure or are they revised at regular intervals?
Considering that real estate, like any other asset class, passes through cycles and the cost of funds for lending institutions also keep changing, most lending institutions have a reset clause in the their respective RMLs. This is to ensure that at no point during the loan tenure, the loan to value ratio exceeds the maximum unlock able value of the mortgaged property. However, this reset clause varies across institutions. While most lending institutions have a reset clause of five years, Central Bank of India and Dewan Housing Finance have a reset clause of three years.
So, after the scheduled period, both the value of the house as well as the rate of interest will be re-evalued and necessary adjustments will be made in your monthly payments.
Q.12 What if I outlive the tenure? Can I still stay in my house?
In case you outlive your loan tenure, you will continue to live in your house. However, the lending institution may stop the monthly payments to you if the unlock able value of the property has already been exhausted.
Q.13 When will the lending institution take my house?
After your death, or if you have permanently moved out of the property, the bank will first give your legal heirs an option to settle the loan. In case of a joint loan, it will become due for recovery and payable six months after death of the last surviving spouse,
Q.14 How does the lending institution recover the money that it has given me under reverse mortgage?
If your legal heirs cannot settle the reverse mortgage loan, then the property will be sold off and after realising its money (total advances and the accumulated interest), the bank will pass on any surplus to your legal heirs.