Should a senior citizen opt for a reverse mortgage to get regular income?

Planning for retirement but don’t have enough options for regular income flow? Well! You can support your living with a reverse mortgage to get a steady source of income.

What is a reverse mortgage loan?

A reverse mortgage loan is a type of secured loan against property that enables borrowers to get a regular source of income either as a lump sum or monthly installments. The amount of a reverse mortgage loan is usually, around 60% of the value of the house, depending on factors like the property condition, value, and demand of the house.

Eligibility Criteria for taking a Reverse Mortgage loan

While a reverse mortgage ensures a steady flow of regular income, it can be taken if you fulfill all these eligibility criteria:

1.    A mortgage loan can only be taken by senior citizens who are above 6o years of age.

2.    They should own the property against which a loan is to be taken.

3.    If the mortgage is taken jointly with a spouse, one member should at least be 55 years of age, and the other should be a senior citizen.

4.    To take a reverse mortgage, the residual life of the property should be 20 years.

Why should Senior Citizens think about taking a mortgage loan:

Mortgage loans can be a good option for regular sources of income if they don’t have other sources of income. Here are some benefits of opting for a reverse mortgage loan.

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1.    Ownership of the house: The mortgage loans enable the borrowers to convert their home into a steady source of income and without giving away the ownership of the house.

2.    Good source of income: If borrowers have a valuable house, they can take a mortgage loan for a regular flow of income. Also, if they don’t want the property to be transferred to their heirs, they can consider the option of taking a loan.

3.    No fixed repayment tenure: The legal heirs of the borrowers can repay the mortgage loan after their death, or banks or lending institutions can recover the loan amount by selling the property.

4.    No tax implications: The amount received as a mortgage loan is not liable for any taxes.

Drawbacks of taking a reverse mortgage loan: In India, mortgage loans are still unpopular because of the following reasons:

1.    Sentimental attachment: The biggest reason why mortgage loans are still unpopular in India is that people have emotional values attached to the house, and they want to transfer the property in the name of their heirs instead of using it as a source of income for themselves.

2.    Process of availing a loan: The process of getting a mortgage loan is lengthy. The borrowers need to ensure that all the taxes and dues are paid on time, as it would lead to foreclosure of the loan. The value of the property is calculated on a timely basis, and the loan value given by the banks is not very attractive.

3.    Lack of awareness about the product: The process of getting a mortgage loan is complicated as compared to other loans. Thus, senior citizens don’t prefer taking it. Also, it is seen that instead of using their big home as an asset, they would prefer to sell it and buy a small house to meet their daily living expenses.

Conclusion: Reverse mortgage loans are a good option for a steady flow of income if senior citizens don’t have any other form of investments or savings. However, it is still unpopular in India because of the emotional attachment of the property and lack of information about the product. The fact that the process of availing a loan is complicated and banks offer loan amounts of low value should thus be considered before opting for it as a regular source of income.