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3 July 2020

Is It Worth to Choose Reverse Mortgage for Regular Income

The reverse mortgage loan was introduced in India in 2007, as a means to cater to the country’s asset-rich, but cash-starved retirees. It is a financial product that offers a lump sum amount to borrowers against a mortgaged property. The equity of that property is converted into cash and disbursed as a way of catering to everyday as well as emergency requirements.

Recent studies show that approximately 20% of India’s population will be over the age of 60 by 2050. It can put immense pressure on the existing social benefit and healthcare system. Senior citizens will also be responsible for bearing the increasing cost of treatment, which can deplete their life’s savings.

Reverse mortgage offers a means for retired individuals to secure financial assistance to maintain their lifestyle. This mortgage scheme offers several benefits; let’s take a look at some of those and analyse in the light if it is prudent to choose the advance for regular income or not.

Benefits of Reverse Mortgage Scheme

These financial products are tailor-made for senior citizens, which is why financial institutions follow terms that offer maximum profit to their customers. Some of the reverse mortgage benefits include –

Non-recourse advance – These mortgage loans are non-recourse, which means lenders cannot hold a borrower (or their next of kin) liable for the repayment. Borrowers or their legal heirs can choose the repay the total outstanding amount along with interest after the loan’s tenor; otherwise, lenders proceed to auction the mortgaged property to recover the disbursed amount.

However, borrowers do hold the right to reside in the mortgaged property until their demise. Lenders can only proceed for auction if an individual or their spouse passes away, and their next of kin decides against clearing the outstanding amount.

No end-use restrictions – Reverse mortgage loans do not come with any end-use limitation. The financial assistance can be used by an individual to pay for their daily expenses as well as for any emergency requirements.

Tax exemption – The Income Tax Act 1961 exempts all income received under this mortgage scheme from taxes. Pensioners can save a significant sum as they will not have to adhere to any tax liability.

Reverse mortgage loans can substitute as a source of regular income for senior citizens. However, this provision is not available for a working individual. In order to create an additional source of income, he or she can look for other financial products, such as a loan against property.

Loan against property is a secured advance where an applicant avails a credit facility by mortgaging residential or commercial property. It differs from a reverse mortgage advance as the borrower stays responsible for repaying the debt within a predetermined loan tenor.

A loan against property can provide the much-needed financial assistance for an individual, as these credits offer a substantial sum, which can go as high as Rs.3.5 crore. Repayment tenors for these advances are extended too. There are several other benefits of this credit; here is a brief overview.

Flexible credit – Certain reputed financial institutions offer Flexi Loan facility with their Loan Against Property. It allows a customer to borrow from a pre-sanctioned amount whenever he or she is in need of monetary assistance and pay interest only on the utilised amount. Such a feature can be used to supplement the credit as a source of additional income, without increasing the interest burden by a significant amount.

The lender also provides pre-approved offers to their existing customers, which simplifies the application process and helps save time. Such offers are available on multiple funding options, including loans against property and home loans. You can check your pre-approved offer by sharing only some essential details online.

Lengthy repayment tenor – Credits like loan against property come with an extensive repayment tenor, which can range between 2 to 20 years. It allows a borrower to pay off the outstanding amount according to their repayment capability. Most financial institutions also allow customers to foreclose their credit against minimum charges.

Quick approval and disbursal – Loan against property comes with easy to meet eligibility criteria and minimum documentation; applicants only have to submit a list of documents required to apply for a loan against property including the property documents. It further simplifies the application process; and, some financial institutions usually take no more than four working days to disburse the credit.

While the reverse mortgage benefits are many, making them an excellent means to provide necessary financial assistance to retired individuals, they cannot act as an alternative to regular income for everyone. Working professionals can look for various alternative financial products to meet their financial requirements affordably while also taking care of the various ways to effectively repay their existing loan.

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