A reverse mortgage loan (RML) is one of the ideal financial products that senior citizens can opt for is they have nominal or zero regular income. They can mortgage their property, against which the lender will provide the loan.
Reverse mortgage may look similar to loans against property; however, both of them have direct features. For instance, borrowers don’t have to pay EMIs on the loan with a reverse mortgage, unlike a loan against property. They only have to repay the loan in some specific cases (mentioned later).
Another difference between reverse mortgage and loans against property is fund disbursal. In case of the latter, a lender disburses the funds in a lump sum. However, customers can avail the loan in a lump sum, monthly, quarterly, or yearly payments in case of reverse mortgage loans.
Reverse mortgage are exceptionally beneficial for the elderly. However, they have to avoid some risks when managing the loan.
Few such risks include:
- Not Occupying The Property For More Than A Year
Homeowners and borrowers of a loan can occupy their house until their demise. However, not living in the property for more than a year will render the reverse mortgage in India due.
Such situations may arise when the borrower/s must lack the financial backing for regular welfare and care.
Failure to repay the loan when the borrower does not reside in their house for more than one year may cause the lender to seize and liquidate it.
On the other hand, customers can choose to vacate their house if they have availed a loan against property. Financial institutions will not seize the asset until there is a default. Applicants only have to know a few things before applying for a loan against property.
- Investing The Funds For Higher Returns
Customers may be tempted into investing the loan in schemes that offer high returns, like mutual funds. They can end up losing their investment, which can force them to bankruptcy. And, the loan will become due if the borrower declares bankruptcy.
- Leasing Out The House
Individuals with a reverse mortgage scheme may lease out a portion of their house or the entire property to avail an extra income. However, loan repayment will become due if they do so.
On the other hand, homeowners can rent out their house even if they have a loan against property on it. These loans are of several types and individuals can even get them against a commercial property.
- Not Making The Spouse A Co-applicant
A reverse mortgage loan becomes due when the last surviving borrower passes away. In such cases, he/she spouse also has to be a co-applicant of this loan. Only then will he/she get to stay in the house after the primary borrower’s demise.
The spouse may be evicted from the property if he/she is not a co-applicant of the financing.
Borrowers may or may not apply with a co-applicant in case of a loan against property. Co-application does not have an effect on this loan.
Also, Loans Against Property are less complicated and hassle-free to apply thanks to NBFCs like Bajaj Finserv, offering up to Rs. 3.5 Crore and disbursal of funds within 4 days post approval.
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. Check your pre-approved offer by providing only your name and phone number.
- Not Paying Property Tax
Homeowners also have to pay property tax regularly if they opt for a reverse mortgage loan in India. Failure to pay the taxes will have a similar effect as the one mentioned above.
- Not Availing a Home Insurance
It is mandatory for borrowers to avail home insurance when they opt for an reverse mortgage. Not buying insurance will also call for loan repayment.
- Not Maintaining the Property
The loan can also become due if the Government condemns the property risk to safety. Hence, borrowers have to perform regular maintenance of their house.
A reverse mortgage can be beneficial if customers can avoid all of these risks mentioned above. But before applying for it must check the reverse mortgage benefits. They will also be able to recover their property after full repayment of the loan.