Sunday, 24 June, 2007

Reverse Mortgage in India

In the Union Budget 2007-08, a proposal to introduce 'Reverse Mortgages' in India was put forth. The concept of reverse mortgage, although new in India, is very popular in countries like the United States.
A reverse mortgage allows the property owner, to access some of the value of the property without selling it. You remain the owner with all your current obligations. And you get a cash stream from your property. When the reverse mortgage agreement is over you or your heirs must repay all of your cash advances plus interest.
In a regular mortgage, a borrower mortgages his new/existing house with the lender in return for the loan amount (which in turn he uses to finance the property); the same is charged at a particular interest rate and runs over a predetermined tenure.
The borrower then has to repay the loan amount in the form of EMIs (equated monthly installments), which comprise of both principal and interest amounts. The property is utilised as a security to cover the risk of default on the borrower's part.
In the reverse mortgage, senior citizens (borrowers), who own a house property, but do not have regular income, can mortgage the same with the lender (a scheduled bank or a housing finance company-HFC). In return, the lender makes periodic payment to the borrowers during their lifetime.
Reverse mortgage works like a pension scheme for the elderly who live in a house owned by them। It is the opposite of buying a house on loan, where you pay an EMI (equated monthly instalment) to your bank. Technically, till you repay the loan, the house belongs to the bank. In reverse mortgage, you agree to mortgage your house to the bank, for which, it pays you the proceeds in equal monthly payouts. (Read more)

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Copyright 2007 Mathew Associates. All Rights Reserved. Kerala Law K M Mathew

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