It is the dream of every senior to be financially independent at all times but this may not be always possible as the pension and other retirement benefits one gets may not be sufficient to tide over and taking up jobs may not quite be the choice. Financial independence is the key to live with dignity. The Reverse Mortgage concept takes care of this.
A Reverse Mortgage is a loan granted against the home owned by a senior who is 62 years and over. Here rather than the home equity getting fortified it gets diluted. The loan gets repaid only after the last borrower dies, permanently leaves the house or sells the house.
The difference between a home equity loan and the reverse mortgage is that the home equity loan gets reduced as one pays and reverse is the case with the reverse mortgage system where the loan gets bigger. The home equity loan repayments have deadlines while in the case of the reverse mortgage system the loan is repaid only after the borrower dies, or moves permanently from the house.
If there is a loan on the house this must be first satisfied perhaps out of the proceeds of the reverse mortgage with several options being available. One can opt for a lumpsum payment, fixed monthly disbursements, random disbursements or a combination of all these.
For all practical purposes the ownership status does not change. The owner still owns the house and lives there as before. The money procured through the reverse mortgage is tax free and can be used the way the senior chooses to. It is expected however that the house must be maintained as per norms laid down.
No matter how differently the market behaves the borrower repays only that amount received if he decides to sell the house and retains the balance if the proceeds exceed the loan amount received.The quantum of loan to be disbursed is calculated on certain parameters which differ based on several factors including the age of the youngest joint owner of the house. All those who own the house jointly incidentally should be 62 years of age or above.
Not much is required to be spent for processing this transaction. There could be some application fee and some amount would be required for documentation and if one finds the need to engage the services of an agent the agent's fees need to be paid. Some 'doubting thomases' engage lawyers and work through them and when this happens one has to be ready to pay the lawyer's fees which differ from lawyer to lawyer.
There are several reverse mortgage lenders and one needs to be selective depending on the experience these lenders have in this area and their credibility. The borrower must be fully equipped to answer whatever questions the lender might ask and the borrower should clarify any doubts that might arise during this session. None of the benefits that the borrower might enjoy such as pension, medical aid and social security will not be touched while enjoying the reverse mortgage income.However, the rate at which this facility is opted for is an indication that advantages far outweigh disadvantages.
While the advantages are several it would be pertinent to mention some of the disadvantages:
- It is a loan and interest will be charged and this interest cananot be claimed for tax exemption.
- Only those 62 years and above can take advantage of this scheme
- Only one house get this facility and some houses such as mobile ones or co-operatives may not be eligible
- There would be an element of expenses at the time of closing.