The loan against property segment is expected to maintain a CAGR of 15% between 2019 and 2024, which is indicative of a growing interest toward such financing options. A traditional mortgage enables a borrower to avail a substantial lump-sum payment against an owned property.
However, reverse mortgage serves a different purpose altogether.
What is a reverse mortgage loan?
A reverse mortgage loan, unlike a regular loan against property, does not require a borrower to bear EMIs. Instead, this individual can receive a regular monthly income from his/her borrower against the mortgaged property.
During this reverse mortgage loan tenure, the property’s ownership remains with the borrower, enabling him/her to reside in the property without any issues.
Moreover, you do not need to repay the liabilities during the loan tenure or during your lifetime. After a borrower’s demise, the legal heir members can decide to pay off this credit or allow the concerned lending institution to auction it for loan recovery.
Still, you must understand the various charges on your loan against property, an alternative funding option, to check feasibility before deciding whether this form of credit is suitable for you.
When weighing your options, consider all the benefits and drawbacks associated with a reverse mortgaging finance.
Benefits of a reverse mortgage advance
Following are some of the financing option’s advantages –
- Monthly income source for retired individuals
Retired applicants can seek such funding as a source of monthly income in the absence of a significant pension plan or savings. Reverse mortgage in India can act as an alternative retirement plan, enabling individuals to spend the remaining years of their life in comfort.
- No repayment burden
The borrower in question does not need to worry about the effective ways to repay his/her existing loan continuously. With no EMI burden to think of, borrowers can rest easy about the financial liabilities or high interest rate concerns.
- Ownership does not change during a borrower’s lifetime
A property on reverse mortgage remains in the owner’s possession until the end of the loan’s tenure or until his/her demise. Therefore, during the loan tenure, you can continue to reside in the property even though it remains mortgaged with a housing finance company.
- The heir can reacquire the property after borrower’s demise
After a borrower’s demise, his/her heir can pay off the entire debt and reacquire the reverse mortgaged house from a lender. Thus, a reverse mortgage scheme does not result in a guaranteed loss of the underlying collateral. Instead, borrowers’ family members get a chance to reclaim this concerned property with due payment.
These are some of the top reverse mortgage benefits. However, a potential borrower should also appreciate its significant drawbacks.
Disadvantages of availing a reverse mortgaged advance
- Prevents parents from leaving the property to their heir
In India, a property is often handed down from one generation to the next. However, a reverse mortgage does not allow parents to follow this tradition. A borrower essentially needs to hand over this property to a lending institution in exchange for the monthly earnings.
The heir would need to repay the total dues through a lump-sum payment to reclaim this property. Doing so can be difficult depending on the loan quantum and interest rates. A typical loan against property does come with such limitations as it requires repayment during the borrower’s lifetime.
- Real estate prices are volatile
Since the property prices fluctuate over time, a reverse mortgage principal, interest rates and other factors can also vary over time. Thus, borrowers cannot expect fixed and routine income every month. This can create challenges when it comes to planning various monthly expenses.
- Origination costs are high
Processing fees for this type of credit is higher than many other loans. Since borrowers do not need to pay these immediately, such charges accrue interest over time and become even more substantial. It represents one of the reasons why a majority of homeowners in India prefer to avail a loan against property instead of such reverse mortgages.
Additionally, reputed HFCs provide pre-approved offers to ensure faster and simpler loan approvals. These offers are available on loans against property, home loans, and more. You can check your pre-approved offer by providing a few details, such as your name and contact information.
Consider carefully before submitting your reverse mortgaging loan application. Such credits are perfectly suited for retired individuals who require regular financing and wish to remain free of monthly repayment liabilities.