What Happens if the Value of the Home Goes up When there is a Reverse Mortgage?

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India ranked 47 out of the 56 countries surveyed in terms of housing price appreciation in 2019. When comparing the housing property rates in the July to September quarter, the country’s home prices only increased by 0.6% year over year. Still, owning a house can lead to significant benefits. For one, it can allow an individual to secure a hefty monthly income by means of reverse mortgage loans.

What are reverse mortgage loans?

Reverse mortgage refers to a line of secured credit that a homeowner can avail against the said property. However, unlike a typical loan, here, the borrower does not need to repay the debt. Instead, he or she can remain in the house until death without dealing with financial liability. After the demise, the loan repayment responsibility falls on their family members, generally a living spouse or children.

Another way in which a reverse mortgage loan differs from typically secured loans is that the borrower can break the entire loan quantum into smaller monthly payments, instead of as a lump-sum amount. Thus, it can act as a funding option after an individual’s retirement as well.

Nonetheless, one major concern for homeowners opting for a reverse mortgage is what happens in the event of property price appreciation. To understand this, one must understand the procedure for repayment of a reverse mortgage loan.

Repayment of reverse mortgage loans

A borrower does not need to repay such a loan in their lifetime. Still, they are free to do so if they wish. Nevertheless, if they do not opt for such repayment, the burden of clearing the debt falls on either his/her spouse or other family members. Thus, there are two options available –

  • The family can repay the loan quantum along with interest
  • If the family is unable to do so, the financial institution is free to sell the property and recover the funds.

Now, one must understand that if a lender sells off the property, they are only entitled to claim their due amount. Thus, if the total repayment sum is Rs.1.5 crore and the property sells for Rs.2 crore, the lender will pay the remaining Rs.50 lakh back to the borrower’s family.

Advantages of reverse mortgage

Reverse mortgage loans are ideal for senior citizens and others who lack any substantial form of income. RML can help these individuals meet their daily financial needs without becoming a liability.

Reverse mortgage benefits include –

  • No need for immediate repayment.
  • Borrowers can remain in the mortgaged property without needing to vacate.
  • If a spouse is a co-applicant for the credit, he/she will continue to receive financial help until demise, even after the primary borrower has passed away.

Those who are still working and have an income can instead look at secured credits like loan against property to fulfil their needs. Ensure you know how to apply for a loan against property to take advantage of such a hassle-free source of funding for homeowners.

Apart from the considerable loan quantum, there are several other benefits of such loans as well. Still, as with all loans, ensure you read about loan against property in detail before applying. Doing so should help you choose the best lenders based on several factors, including interest rate, tenor and the loan principal.

Whether opting for a reverse mortgage loan or a loan against property, borrowers would need to provide detailed property documents. Thus, before applying for the said credit, arrange all necessary paperwork.

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