Reverse mortgage is a home loan wherein the borrower will receive the loan amount in monthly instalments for a house he/she owns. This is the opposite of a home loan where the borrower would have to pay monthly instalments to the lender.
The documents required to avail a reverse mortgage are mentioned below.
|National Housing Bank (NHB)||Punjab National Bank (PNB)|
|Central Bank of India||Indian Bank|
|Andhra Bank||Dewan Housing Finance Limited (DHFL)|
|State Bank of India (SBI)||LlC Housing Finance|
|Corporation Bank||Canara Bank|
Senior citizens looking for a stable source of income can benefit from a reverse mortgage. Not only do they receive a steady source of income, but their heirs would profit from this transaction in almost all cases as the property value is bound to rise overtime and outweigh the loan amount.
Introduced to the nation in 2007, a reserve mortgage has been a blessing to many looking for a stable income in the current economy. Vaguely, a reverse mortgage is the opposite of a home loan. In a reverse mortgage, the borrower will receive the loan amount in monthly instalments for a house he/she owns, as opposed to a home loan where the borrower will have to pay off the loan in monthly instalments to the bank.
So how does the bank profit from this transaction? This can be explained in the following example. Let’s say that Mr. and Mrs. Raghav fully own a house worth Rs.1 crore in the city of Bangalore and are looking for a stable source of income as their two children haven’t begun earning yet. Aged 60 and 65 respectively, the Raghavs then opt to go for a reverse mortgage. On consulting with a bank, the bank agrees to approve a reverse mortgage of Rs.75 lakh for 15 years, payable in sums of Rs.42,000 monthly.
At 80, Mr. Raghav passes away of old age. However, his wife still lives in the house and his two children are old enough to financially support the family. A few years later, Mrs. Raghav too passes away at the age of 85. The tenure of the reverse mortgage has now surpassed the 15 years initially agreed upon and is now 20 years old. The loan has therefore grown and currently amounts to Rs.1 crore.
At this point, the property is then transferred to their children. The children now have two choices on how to go about closing the loan. They can either pay off the loan of Rs.1 crore and keep the property or they could sell off the property that will now be worth Rs.2.5 crore, pay off the bank and keep the difference. In this case, if Raghav’s children sell the house for Rs.2.5 crore, they will have Rs.1.5 crore for themselves after paying off the mortgage of Rs.1 crore.
In the event that the borrower of a mortgage loan doesn’t have a legal heir, the bank will simply take possession of the house, sell it off and make a profit out of it.
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