3 Major Disadvantages of Reverse Mortgage Loan
By Anupama Deshpande | December 13, 2019

Reverse Mortgage loan is a loan which is given against mortaging a house property which is in the name of a person who is atleast 60 years of age. Funds from the reverse mortgage loan can be obtained as a lump sum or as a stream of monthly payments. People who have no other savings or source of income may find reverse mortgage loan as a source that meets their retirement needs.

Related reading How Do Reverse Mortgage Loans Make Oldies Life Easy?

• Senior citizens of India (above 60 years of age) are eligible
• Senior citizen must own a residential property
• House must be self-occupied
• The residential property must be free from any encumbrances
• In case of couples as co-borrowers, the age of the younger borrower should not be less than 55
• The borrowers can get a loan up to 60% to 80% of the market value of residential property depending on their age
• The rate of interest on a Reverse Mortgage Loan is in the range of 10% to 14% p.a.
• The repayment period can be in between 10 to 20 years again depending upon the age of the borrower
• There is a cap of Rs 1 crore on the loan amount under this type by some of the lenders

Popular reading All about Post Office Monthly Income Scheme (POMIS)

Reverse Mortgage Loan, introduced in the country by the National Housing Bank (NHB) in May 2007, is a very good option provided to senior citizens though very less number of people avail loan under this facility due to following 3 major disadvantages of reverse mortgage loan:

It is required by the lender that you have to live in the mortgaged house an dyou cannot go to live anywhere else. If you do not reside in that house continously for a period of 1 year then the lender may ask you to foreclose your loan. A reverse mortgaged house cannot be given on rent. The borrower cannot move to any other place permanently and if he wants to move, he has to repay the reverse mortgage in full before doing that.

Lender requires the mortgaged house to remain insured till the loan is not repaid so you need to keep it insured. Also you need to pay property tax, water tax, etc. on time. The house is also required to be well maintained by the borrowers so that it can retain its value.

Popular reading All about Senior Citizen Savings Scheme (SCSS)

Suppose you have availed the loan and lived in the house till you die but could not repay the loan, then the lender is authorised to sell your house and can recover all your outstanding loan amount and then whatever is left, will be given to your legal heirs.

As an owner of a house property, if you do not have any savings or source of income after your retirement, you can go for Reverse Mortgage Loan but at the same time you need to keep in mind above-mentioned facts. Remember that in case of Reverse mortgage loan, you will get a benefit of appreciation of the value of your house as it will be revalued by the lenders in every 3 to 5 years and the loan amount is adjusted accordingly and suppose the value of your house is dropped and it is less than your reverse mortgage outstanding loan, you need not cover that shortfall.