The Loan That Does Not Count Old Age As a Negative Profile

The Loan That Does Not Count Old Age As a Negative Profile

Reverse mortgage facility provides senior citizens with funds against the equity in their homes.Most of the senior citizens, who are retired from work and left with limited savings, have to rely heavily on their sole immovable property, the one they live in, to generate income. An option often used after retirement is to rent the existing house and move to a smaller house. Some also sell the house altogether and invest the proceeds to earn a higher monthly income.

Whatever may be the case, senior citizens will be forced to look around for accommodation and keep on worrying about the rising rents in the immovable property market. In such situation reverse mortgage can be of great value. This facility allows senior citizens to unlock the value of their home, by mortgaging it and enjoying the use of the money in their lifetime while continuing to live in their house until they breathe their last. In India, this scheme has not gained significant popularity because it was not packaged or implemented the way it should be.

Reverse mortgage is a different form of loan against property. Indian banks have so far capped the available loan amount under this financing schemes Rs 50 lakh, instead of providing for an equitable percentage of the property's market value. The maximum limit of the loan period is 15 years. A 60-year-old couple may wish to put themselves in a position to have to redeem the principal along with interest amount when they are 75 or more, because at this age they are unlikely to have the stamina to sell out and move for a new accommodation.

How much of an additional income can a house generate using this special form of loan against property? Most loans against property work at 60 per cent LTV(loan to value) ratio. Some public sector banks are however designing reverse mortgage products with a higher LTV, which could amount to almost 90 per cent in some special cases. The loan amount paid out also depends on the age of the home-owner. The bank makes an evaluation of the current value of the immovable property, decides the likely lifespan of the loan applicant and his/her spouse, and, then only decides what percentage of the current value can be offered as to loan them.

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