2 Replies
Anshul Mittal
(Freelancing)
(741 Points)
Replied 29 October 2010
A reverse mortgage (or lifetime mortgage) is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care).
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term the mortgage has been paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the only mortgage on the property...................... source- wikipedia...........
Sukanya
(Professional)
(550 Points)
Replied 29 October 2010
Reverse mortgage means the property possessed by senior citizens being mortgaged by them for the purpose of regular income for a period of 15 years.
This concept has been introduced in the wake of many senior citizens are without proper source of income during their retirement period and also the increasing nuclear family system..
They can mortgage land/house to the bank. Based on its value, the bank will agree to give fixed money on a monthly/quarterly basis..(after calculating and deducting interest costs and price fluctuations). There will be an option for nomination. The nominee has the right over the property after the death of the senior citizen. At that juncture, the bank will give two options to the nominee -
a) Either to pay the full mortgage and take back the property
OR
b) allow the bank to sell the property and take the proceeds.
The special features are
1) No payment of interest for the senior citizens since they have mortgaged. The lending bank will recover it by selling it after the death. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.
2)They can stay in the house (if that is the property mortgaged)
For further details, please refer to
https://www.equitipz.com/2010/02/what-is-a-reverse-mortgage-scheme.html
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