A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property
The loans are typically o older homeowners and typically do not require monthly mortgage payments
The entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home
Federal regulations require lenders to structure the transaction so the loan amount doesn’t exceed the homes value and the borrower or borrowers estate won’t be held responsible for paying the difference if the loan balance does become larger than the homes value
Key points of reverse mortgage
1) type of loan for seniors ages 62 and older
2) allow homeowners to convert their home equity into cash income with no monthly mortgage payments
3) are federally insured, but beware a spate of reverse mortgage scams that target seniors
4) it can be a great financial decision for some, but a poor decision for others
Types of Reverse Mortgage
1) single purpose reverse mortgage
2) home equity conversion mortgage
3) proprietary reverse mortgage
Proceeds of reverse mortgage
1) lump sum Get all the proceeds at once when you Lian closes Fixed interest rate
2) Equal monthly payments (annuity) Lender will make steady payments to the borrower Tenure plan
3) Term payments Lender gives the borrower equal monthly payments for a set of borrowers choosing, such as 10 years
4) Line of credit Money is available for the homeowner to borrow as needed The homeowner only pays interest on the amounts actually borrowed from the credit line
5) Equal monthly payments plus a line of credit Lender provides steady monthly payments for as long as at least one borrower occupies the home as a principal residence If the borrower needs more money at any point, they can access the line of credit
6) Term payments plus line of credit Lender gives the borrower equal monthly payments for a set period of the borrowers choosing, such as 10 years If the borrower needs more money, during or after that term, they can access the line of credit
Point of reverse mortgage
It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills
Responsibility of heirs in reverse mortgage
Reverse mortgage heirs do not have to take on the remainder of the loan balance and are not held responsible for paying back the loan
If the loan balance is more than the appraised value of the home, heirs will not have to pay the difference
After reverse mortgage borrower death
1) lender will typically explain options for paying off the loan to the borrowers estate
2) heirs then have 30 days what to do
3) in order to keep the home, heirs of a reverse mortgage are required to pay the full loan amount, but never more than 95% of the property’s appraised value
4) heirs can sell the home, pay off the loan balance and take whatever left from the S as sale as an inheritance
5) heirs can walk away from property without owing anything
Credit score required for reverse mortgage
There is no minimum credit score requirement for a reverse mortgage
Tax on reverse mortgage payments
Reverse mortgage payments are not taxable It is considered as loan proceed and not income
Hidden costs of reverse mortgage
1) origination fees (paid to the lender)
2) Real estate closing costs (paid to third-parties) that can include
Appraisal, title search, surveys, inspections, recording fees, mortgage taxes, credit checks and other relevant fees
Divorse effect on reverse mortgage
Submit Divorse decree to loan servicer
One of the spouses will be permitted to be removed from the home title, keeping the Lian in the remaining spouses name
Advantages of reverse mortgage
1) flexibility
2) stay in your home and improve your immediate finances
3) low risk of default
4) no downside
5) tax free
6) no restrictions
7) flexible payment options
8) home ownership
9) guaranteed place to live
10) federally insured
11) can preserve your wealth
Preserve and increase the value of your home equity
Maximise wealth
Disadvantages of reverse mortgage
1) high fees
2) accumulating interest
3) not enough cash can be tapped
4) it seems complicated
Points to be considered by banks/financial institutions for reverse mortgage
1) legal aspect
2) identification of the property
3) method of valuation
4) advancing loan
5) amount of loan
6) to enter encumbrance in property card
7) followup action
Title holding in reverse mortgage
The title to the home remains to mortgager
Mortgager are responsible for property taxes, insurance, utilities, fuel, maintenance and other expenses
Impact of reverse mortgage on social security
Reverse mortgage payments have no impact on social security or medicare eligibility
Eligibility criteria for SBI reverse mortgage
1) Indian resident
2) minimum age 60 years when single borrower, in case of joint borrowers, spouses age should be more than 58 years
3) loan tenure is 10-15 years depends on age of borrowers
4) loan amount minimim Rs 3 lakhs and maximum Rs 1 crore
Interest rates and fees for SBI reverse mortgage
1) Processing fee
0.50 % of the loan amount Minimum Rs 2,000 Maximum Rs 20,000
Plus applicable taxes
2) Post Sanctioned
Stamp duty payable for Lian agreement & mortgage
Property insurance premium
Cersai registration fee of Rs 50 + GST up-to Rs 5 lakh limit and Rs 100 + GST for limits above Rs 5 lakh
To be paid as actuals
Documents required for SBI reverse mortgage
1) List of papers/documents applicable for all applicants
Construction permission Registered sale agreement Occupancy certificate Share certificate Maintenance bill Electricity bill Property tax receipt Approved plan copy Registered development agreement Conveyance deed Payment receipts if any
3) Account statements
Last 6 months bank account statements for all bank account held by applicants
If any previous loan from other banks/lenders, then loan account statement for last 1 year
4) Income proof for salaried applicant/co-applicant/guarantor
Salary slip or salary certificate for last 3 months
Copy of form 16 for last 2 years or copy of IT returns for last 2 financial years, acknowledged by IT department
5) Income proof for non-salaried applicant/co-applicant/guarantor
Business address proof IT returns for last 3 years Balance sheet & Profit & loss account statement for last 3 years Business license details TDS certificate Certificate of qualifications
Features of SBI reverse mortgage
Low interest rate starting from 8.05% per annum
Low processing fees of 0.50% of loan amount
No hidden charges
No pre payment penaulty
For SBI pensioners – 8.05% per annum
For public 9.05% per annum
Reverse mortgage is not popular in India
You can not rent the property ie you can not get money by giving your house on rent and this is a load to you
If you move out of the house you will have to pay the entire reverse mortgage amount (borrowings + interest)
Reverse mortgage loan important eligibility criteria
1) borrower must have a fully owned house
2) the property must have been in existence for at least 20 years
3) properties that are let out or being used for commercial uses are not eligible for reverse mortgage
