Reverse Mortgage Loan

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Reverse Mortgage Loan

Senior Citizens are an increasing component of the Indian society and dependency in old age is increasing in the country. Most senior citizens have spent a life time working, providing and saving. They have built a home, brought up their children, often giving them the best possible education, got their children married and are now retired from service. While on one hand, there is significant increase in longevity and low mortality, on the other hand, cost of good health care facilities is spiraling and there is little social security service. As senior citizens head into their twilight years, they suddenly realize that they probably need a lot more money per month, than what they had originally anticipated. Their current savings prove to be inadequate at this juncture and they require a regular cash flow stream for supplementing pension/other income and addressing their financial needs. In most cases parents expect their children to support them monetarily, if possible, which may or may not happen. This is a familiar situation in many Indian homes. And this is where the reverse mortgage comes in handy.

A reverse mortgage is a loan made available to senior citizens and is used to release the home equity in the property which stands in their name, either in one lump-sum or in multiple payments similar to our EMI. For most Senior Citizens, the house is the largest component of their wealth. In this case the home owner's obligation to repay the loan is deferred until the owner dies, at which point either the home is sold to recover the money or the owner's heirs may choose to repay the loan and take back full possession of the house.

In a conventional mortgage, the home owner makes a monthly EMI payment to the lender, usually a bank, and after each payment the equity increases with his or her property and typically after the end of the term (eg. 15 or 20 years) the mortgage has been fully paid and the property is released from the lender. Whereas in a reverse mortgage the home owner makes no payment and all interest is added to the lien on the property. If the owner receives monthly payments then the debt on the property increases each month.


The finance minister introduced the concept of reverse mortgage in India in his budget of 2007.

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