Why we need reverse mortgage

18 October 2004

A self-occupied home in a prime locality is actually worthless for the elderly without adequate means of support, in the absence of old age security. Consequently, India has many Sadasivams who are forced to encash their properties for their monthly sustenance.

They would have happily opted for a reverse mortgage plan on of their homes if only the domestic housing finance companies and other financial institutions had offered the facility.

As the name suggests, a reverse mortgage is the exact opposite of a normal mortgage transaction (hence the name reverse mortgage) but restricted to a housing property. A normal mortgage transaction involves the home being pledged by the buyer to the lender as a security for the loan. In a normal mortgage transaction, banks and home finance companies have to consider the borrower's income and repayment capacity to determine the loan amount, duration and the monthly repayment.

However, in a reverse mortgage (popular in the US and Canada) the lender instead of paying upfront, pays the borrower a sum every month.

A person who is over 62 years of age and owning a housing property will be eligible to enter into a reverse mortgage transaction even when he owes money on a first or second mortgage.

The money received from reverse mortgage could be used to pay off the previous mortgages, monthly livelihood, medical bills, repairs, and extensions of the original property and even for pleasure like travel.