What is mortgage?
We have understood the basics of mortgage in one of the earlier posts called Mortgage Understanding. I would recommend that you read the details of Mortgage before engaging in Reverse Mortgage.
According to the definition of a layman, a mortgage is a loan to finance the purchase of a home. This is clearly the biggest debt you would ever take in your life.
Literally, the second mortgage is a French legal term meaning "death contract". The pledge ends (dies) if either the obligation is fulfilled or the fortune is taken by foreclosure.
What is Reverse Mortgage Loan (RML)?
The reverse mortgage is a loan that allows homeowners who have reached the age of 60 to convert part of their home ownership into income without having to sell it.
Under the scheme, the bank determines the value of the property and sets a percentage of its current value as the loan amount. This is based on various parameters, eg. B. the expected life of the elderly citizen and his spouse.
As a rule, the loan amount is 60-70% of the market value of the property. Applicants have the option to take on the loan as a lump sum or as a fixed monthly amount. After the death of the elderly citizen, the surviving spouse can continue to occupy the estate until his death. The value of the property is regularly reassessed by the parties, the owner and the bank. If the rating has increased, the applicants have the opportunity to increase the loan amount.
However, one should be willing to pay money for fees such as processing, evaluation and attorney fees for the use of the loan. The maximum limit for processing fees is Rs 10,000. The valuation and legal costs may add up to between Rs. 5,000 and Rs. 10,500 depending on the loan amount.
How is the reverse mortgage loan repaid?
In the case of a reverse mortgage, no payments will be made during the term of the borrower, unless you want to prepay and cancel the reverse mortgage contract.
The loan must first be paid after the borrower and the spouse have died. As no payments are made during the life of the reverse home mortgage loan, the loan balance increases over time. In most areas where the appreciation is good, the value of the home grows much faster than the credit balance. Therefore, the remaining equity continues to grow.
If both the borrower and the spouse have died, the property of the dwelling is transferred to the estate or referred by a living will to the beneficiaries. The beneficiaries now own the home and must sell the home or pay off the loan. When the house is sold, the reverse home mortgage lender is paid out and the beneficiaries keep the leftovers.
Renting a reverse mortgage property
One of the clauses in a reverse mortgage contract is that the property in question should be a house used by borrowers as their primary residence. This implies that renting or leasing the property is not legally possible.
Sale of a reverse debited property
The sale of a reverse mortgage real estate is permitted by law. But you have to keep the following in mind before proceeding:
1) Compare the total debt (due to the monthly principle and the interest accrued by the bank under the reverse mortgage contract) with the market value of the home. If the amount owed to the bank more or less matches the current market value of the property or if the positive difference is minimal, the sale of the property may not be very meaningful.
2) You may not be able to sell the property if you owe the bank an amount that approximates the value of the property and you do not have the financial means to cover the cost of selling the property.
What happens when house prices fall?
If the current value of the property falls below the accrued capital and interest amount, the bank suffers a loss. This is a risk that the bank incurs when you enter into a reverse mortgage contract with you. This could be the case if the real estate market has not risen in the way the bank originally estimated.
In this case, you either have to pay back the principle + interest to the bank and take possession of your property, or you decide not to do so. In this case, the bank owns the property. Since the real estate price is subject to the principle + interest, the bank can suffer a loss.
Tax impact of the sale of a reverse encumbered asset
1) The borrower must pay a capital gains tax on the profit realized from the sale of the property.
2) Banks do not have to pay anything as the property is held as collateral or security for the loan it provides.
3) Another important consideration is that the borrower should have alternative housing before selling his home. As a rule of thumb, you can only opt for a sale if the proceeds are large enough to allow for further accommodation after repayment of the loan to the bank. In addition, the transaction should bring in a sufficient amount so that it can invest in reasonable monthly returns.
How can an RML be excluded?
1) A senior who has undone his property can easily claim ownership by paying the outstanding amount to the bank.
2) The reverse mortgage structure is such that you owe only what you have received from the loan amount by that date, as well as the interest you pay and any fees that the lender may charge. According to bank officials, the institution calculates the interest up to the day on which the principal amount is to be paid. The interest is thus calculated on the previously taken money. Many public banks do not even have a foreclosure fee.
When should you consider taking Reverse Mortgage?
Although Reverse Mortgage seems a nice idea, it should not be the most important tool to finance retirement. It should not be used to finance the underfunding of retirement income.
It should be used in exceptional cases, eg if you have no legal heirs or left money for you after death. There are many old people who have assets of high value, but they have no regular income. In this case you can use the reverse mortgage.
Quick review of reverse mortgage loans
1. Reverse Mortgage is only available to seniors. Homeowners over the age of 60 are entitled to a reverse mortgage. If a woman is a competitor, she should be over 58.
2. The maximum loan is up to 60% of the value of the residential property with a maximum of 50 Rupees.
3. The maximum duration of the real estate mortgage is 15 years. The minimum term is 10 years. Some banks, such as PNB, have been offering a reverse mortgage loan for 20 years.
4. The borrower may at its discretion decide at any time for monthly, quarterly, annual or flat-rate payments.
5. The revaluation of the property must be carried out by the bank every 5 years.
6. The amount received by reverse mortgage is considered a loan rather than an income. Therefore, the same will take no tax liability.
7. Reverse mortgage rates will vary according to market conditions depending on the wheather borrower's chosen firm or interest rate propel.
8. You can repay the loan early with the interest at any time during the loan term. Usually there is no prepayment penalty.
We have understood the basics of mortgage in one of the earlier posts called Mortgage Understanding. I would recommend that you read the details of Mortgage before engaging in Reverse Mortgage.
According to the definition of a layman, a mortgage is a loan to finance the purchase of a home. This is clearly the biggest debt you would ever take in your life.
Literally, the second mortgage is a French legal term meaning "death contract". The pledge ends (dies) if either the obligation is fulfilled or the fortune is taken by foreclosure.
What is Reverse Mortgage Loan (RML)?
The reverse mortgage is a loan that allows homeowners who have reached the age of 60 to convert part of their home ownership into income without having to sell it.
Under the scheme, the bank determines the value of the property and sets a percentage of its current value as the loan amount. This is based on various parameters, eg. B. the expected life of the elderly citizen and his spouse.
As a rule, the loan amount is 60-70% of the market value of the property. Applicants have the option to take on the loan as a lump sum or as a fixed monthly amount. After the death of the elderly citizen, the surviving spouse can continue to occupy the estate until his death. The value of the property is regularly reassessed by the parties, the owner and the bank. If the rating has increased, the applicants have the opportunity to increase the loan amount.
However, one should be willing to pay money for fees such as processing, evaluation and attorney fees for the use of the loan. The maximum limit for processing fees is Rs 10,000. The valuation and legal costs may add up to between Rs. 5,000 and Rs. 10,500 depending on the loan amount.
How is the reverse mortgage loan repaid?
In the case of a reverse mortgage, no payments will be made during the term of the borrower, unless you want to prepay and cancel the reverse mortgage contract.
The loan must first be paid after the borrower and the spouse have died. As no payments are made during the life of the reverse home mortgage loan, the loan balance increases over time. In most areas where the appreciation is good, the value of the home grows much faster than the credit balance. Therefore, the remaining equity continues to grow.
If both the borrower and the spouse have died, the property of the dwelling is transferred to the estate or referred by a living will to the beneficiaries. The beneficiaries now own the home and must sell the home or pay off the loan. When the house is sold, the reverse home mortgage lender is paid out and the beneficiaries keep the leftovers.
Renting a reverse mortgage property
One of the clauses in a reverse mortgage contract is that the property in question should be a house used by borrowers as their primary residence. This implies that renting or leasing the property is not legally possible.
Sale of a reverse debited property
The sale of a reverse mortgage real estate is permitted by law. But you have to keep the following in mind before proceeding:
1) Compare the total debt (due to the monthly principle and the interest accrued by the bank under the reverse mortgage contract) with the market value of the home. If the amount owed to the bank more or less matches the current market value of the property or if the positive difference is minimal, the sale of the property may not be very meaningful.
2) You may not be able to sell the property if you owe the bank an amount that approximates the value of the property and you do not have the financial means to cover the cost of selling the property.
What happens when house prices fall?
If the current value of the property falls below the accrued capital and interest amount, the bank suffers a loss. This is a risk that the bank incurs when you enter into a reverse mortgage contract with you. This could be the case if the real estate market has not risen in the way the bank originally estimated.
In this case, you either have to pay back the principle + interest to the bank and take possession of your property, or you decide not to do so. In this case, the bank owns the property. Since the real estate price is subject to the principle + interest, the bank can suffer a loss.
Tax impact of the sale of a reverse encumbered asset
1) The borrower must pay a capital gains tax on the profit realized from the sale of the property.
2) Banks do not have to pay anything as the property is held as collateral or security for the loan it provides.
3) Another important consideration is that the borrower should have alternative housing before selling his home. As a rule of thumb, you can only opt for a sale if the proceeds are large enough to allow for further accommodation after repayment of the loan to the bank. In addition, the transaction should bring in a sufficient amount so that it can invest in reasonable monthly returns.
How can an RML be excluded?
1) A senior who has undone his property can easily claim ownership by paying the outstanding amount to the bank.
2) The reverse mortgage structure is such that you owe only what you have received from the loan amount by that date, as well as the interest you pay and any fees that the lender may charge. According to bank officials, the institution calculates the interest up to the day on which the principal amount is to be paid. The interest is thus calculated on the previously taken money. Many public banks do not even have a foreclosure fee.
When should you consider taking Reverse Mortgage?
Although Reverse Mortgage seems a nice idea, it should not be the most important tool to finance retirement. It should not be used to finance the underfunding of retirement income.
It should be used in exceptional cases, eg if you have no legal heirs or left money for you after death. There are many old people who have assets of high value, but they have no regular income. In this case you can use the reverse mortgage.
Quick review of reverse mortgage loans
1. Reverse Mortgage is only available to seniors. Homeowners over the age of 60 are entitled to a reverse mortgage. If a woman is a competitor, she should be over 58.
2. The maximum loan is up to 60% of the value of the residential property with a maximum of 50 Rupees.
3. The maximum duration of the real estate mortgage is 15 years. The minimum term is 10 years. Some banks, such as PNB, have been offering a reverse mortgage loan for 20 years.
4. The borrower may at its discretion decide at any time for monthly, quarterly, annual or flat-rate payments.
5. The revaluation of the property must be carried out by the bank every 5 years.
6. The amount received by reverse mortgage is considered a loan rather than an income. Therefore, the same will take no tax liability.
7. Reverse mortgage rates will vary according to market conditions depending on the wheather borrower's chosen firm or interest rate propel.
8. You can repay the loan early with the interest at any time during the loan term. Usually there is no prepayment penalty.
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