Monday, October 3, 2011

Reverse mortgage helps seniors

Reverse mortgage helps seniors

Buying a home is often the largest investment homeowners ever make. After this huge step, financial planning runs its course with hardly enough kept aside for retirement . And while some homeowners in their retirement may get lucky with responsible children others may not be that fortunate. Many leading banks have put up an ideal solution for such senior citizens in the form of reverse mortgage. 


Under the reverse mortgage scheme, many senior citizens can now live independently without having to worry about their expenses. Through this scheme, any senior citizen generally above the age of 60 who holds a house or property but lacks a regular source of income can mortgage his/ her property with a bank or housing finance company (HFC) and the HFC makes regular payments to such a senior citizen in effect allowing the property to pay for the owners expenses. Such a loan is provided against self-owned and self-occupied homes. The loan amount can be received in monthly, quarterly or in lump sum payments. 


The loan amount would 90 per cent of the value of the property and it would include interest till maturity. Generally, the apprised value of the property is estimated by an officer employed or contracted by the HFC. Such an officer takes a number of features under consideration that include the market value of the property, the longevity and structural viability of the property, infrastructure and amenities provided, its maintenance etc. 


An important feature of such a scheme is that such a senior citizen and their spouse can continue to live in such a mortgaged property for life. A loan of reverse mortgage can be jointly given if the spouse is generally above fifty eight years of age. Neither the mortgagor nor his spouse needs to make any payments to the HFC during their lifetime. After the death of the borrower and consequently that of the spouse, the legal heirs have the first right to pay the reverse mortgage with accumulated interest to reclaim the mortgaged property. Both the borrower and spouse can continue to live in such a mortgaged property as long as they live even if they outlive the tenure of the loan sanctioned. The only hitch would be that they would not receive payments beyond the tenure of the loan. 


If you're thinking what the HFC gets out of it, the answer is that if the legal heirs do not want to reclaim the property, the HFC acquires the right to sell the property after the mortgagor or their spouse passes away as a way to recover the loan. Any surplus profits from such a selling are then passed on to the mortgagor's legal heirs.
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