Plain Home Loan Case Study

1255 Words6 Pages

The life expectancy in India has been rising steadily in the last few decades. However, so have the costs of medical treatment. For senior citizens, who have a lack of regular income or financial support from children, this could lead to a financial crisis. Further, gone are the days when the elderly lived with their sons and daughters, depending on them for their amenities and medical needs. The reverse mortgage, introduced by the Union Government in 2007, is an answer to such issues faced by senior citizens, giving them a life of dignity. So what is the reverse mortgage scheme? This scheme is exact ‘reverse’ of plain home loan scheme. In case of a home loan one takes a lump sum loan and repays it in instalments in future. Under the reverse …show more content…

Sharma, a central government retiree, has been living with his wife in an independent home for the last 35 years. His two sons, both settled in New York, have no intention of moving base to India. Husband and wife, well past in their sixties do not wish to live with their sons in a foreign country. Mr. Sharma, a heart patient and his wife a diabetic, have a substantial monthly medical expenditure. Not satisfied with his pension, and not wanting to depend on his sons, for household expenditure as well as medical care, he approached his bank for a solution. The bank advised him to opt for Reverse Mortgage, to ease his monthly expenses. How does a reverse mortgage work? Let us understand the process: When the home is pledged, its monetary value is arrived at by the bank, on the basis of the demand for the property, current property prices, and the condition of the house. The bank then disburses a loan amount to the borrower in the form of periodic payments, after considering a margin for interest costs and price fluctuations. The periodic payments also known as reverse EMI are received by the borrower over fixed loan tenure. With each payment, whether monthly or quarterly, the equity or the individual's interest in the house decreases. A reverse mortgage is an ideal option for senior citizens who require regular income, or if the property is of illiquid nature for some …show more content…

• Maximum loan amount would be up to 60% of the value of the residential property. • Maximum tenure of the mortgage is 15 years and minimum is 10 years. Some banks are now also offering a maximum tenure of 20 years. • Option of monthly, quarterly, annual or lump sum loan payment. • Property revaluation to be undertaken by the lender once every 5

Open Document