Meaning of reverse mortgage

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KRISHNAKUMAR PRAJAPATI

KRISHNAKUMAR PRAJAPATI (Querist)
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26 April 2013 please explain me in detail the meaning of the word reverse mortgage.

CA Vikas Acharya

CA Vikas Acharya (Expert)
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27 April 2013 A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. 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.

Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage.

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Jagga Rao Malipeddi

Jagga Rao Malipeddi (Expert)
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28 April 2013 While I agree with Expert Mr.Vikas, the following are the additions:
1) It is a new bank product to give leverage to the parents who have immovable properties and no liquidity.
2) They can obtain mortgage loan (quantum fixed by the bank taking into account the discounted value, the estimated life time of the borrower etc.).
3) They need not repay the amount during their life time if they desire so.
4) If they repay the entire amount the mortgaged property is released by the Bank.
5) If they do not repay during their life time,their legal heirs can pay the entire debt and get the property back (release of mortgage) from the Bank.
6) This scheme is useful for those parents of NRIs and similar people, whose have immovable properties and their needs are not taken care of by their children.
7) This scheme provides relief for liquidity to the parents and also title back to the children if they desire to pay-off and get back the property.

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