Reverse mortgage loans (RMLs) enable borrowers to avail finances by mortgaging their residential property. The funds are disbursed either lump sum, monthly, quarterly, or yearly as per the borrower’s preference.
A reverse mortgage loan is a loan for a pensioner aged 60 or above. Co-applicants of this loan have to be at least 58 years of age.These loans are beneficial for those who seek additional funding when they have low or no regular income. Elders may not want to take financial help from their children, who may live abroad.
One of the primary reasons why senior citizens avail RMLs is healthcare costs. A constant rise in medication and medical costs forces the elderly to look for additional sources of finances.
Few myths prevalent with RMLs are mentioned below –
- An Rml Is The Same As A Loan Against Property
Both reverse mortgage loans and loans against property are secured mortgage loans. However, they are not similar to each other.
Borrowers have to make mandatory EMI payments when they avail a loan against property, unlike an RML. Loans against property are of several types, while the latter is only of one.
- Borrowers Have To Repay Their Loan After Its Tenure Ends
Homeowners will get to live in their property even after the loan period concludes. Tenures for such loans can range up to 18 years, and borrowers can avail periodic payments as per their requirement during this time.
- Customers Cannot Sell Their House After Taking An Rml
Borrowers can sell their house even when they have availed a loan for pensioner against it. In such cases, the loan repayment will become due. Also, homeowners have to pay income tax on capital gains in case of such sale.
- Borrowers Can Get Whatever Amount They Ask For
The loan amount applicants avail depends on the market value of their property. However, the loan to value (LTV) can never be more than 60%. The LTV for loans against property can go up to 75%.
Lenders will also conduct a property revaluation every 5 years to assess its price. They may increase the loan amount if its value changes. In such scenarios, the borrowers will avail the amount in a lump sum.
- The Lender Will Seize The Property With A Borrower’s Demise
Another prevalent myth about this loan for pensioner is that financial institutions will seize the property if the borrower dies.
The borrower’s spouse will continue to receive the payments from the lender as long as he/she occupies the property even after the former’s demise.
Financial institutions hold the right to seize their property and liquidate it after the last surviving borrower’s demise.
- There Is No Way Of Recovering The Property After The Borrower’s Death
There is a prevalent myth that the legal heirs have no way of recovering the property after their parents’ demise.
However, lenders offer them a chance to repay the loan and recover their property. Failure of repayment will cause the financial institution to gain ownership of the house. The lender will return any additional amount to the heirs if the property’s sale price is higher than the loan.
Hence, availing a loan against property can be more beneficial. Borrowers pay affordable EMIs over a long period to repay this loan, which enables them to keep hold of their house. There are various ways for how customers can effectively repay their loan to avoid defaulting.
- Borrowers Can Rent Their Property Out When The Loan Is In Effect
The pensioner loan will become void if a borrower chooses to rent out his/her property either wholly or partially.
Homeowners can lease out their house if they have availed a loan against property. NBFCs like Bajaj Finserv provide such loans up to Rs. 3.5 Crore with tenures up to 20 years.
Bajaj Finserv also brings pre-approved offers that simplify the process of availing loans and helps save time. Pre-approved offers are available on personal loans, business loans along with secured loans like home loans, and several other financial products. However if you are going to apply for it must know the reverse mortgage benefits before applying.
Lastly, another prevalent myth is that borrowers can choose to vacate their house. In that case, the loan will become if they have not occupied their property for more than one year.