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What is reverse mortgage scheme

Himanshu Arora (Articleship) (292 Points)

18 September 2012

Can anyone tell me what is reverse mortgage scheme as its used in transaction like transfer of capital asset.

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Sanjay S (Chartered Accountant) (1375 Points)
Replied 23 September 2012

In layman language, a reverse mortgage is a scheme whereby people (esp. senior citizens in retirement, in need of a smooth and regular income for survival) can borrow money by pledging their houses as collaterals against such loans.... The benefit is they get to live in the house and the loan amt. is disbursed to them at regular instalments, and the house will be sold by the bank, in most cases only after the death of such person.

The advantage of a reverse mortgage is that the borrower's credit is not relevant, and is often unchecked, because the borrower does not need to make any payments. Because the home serves as collateral, it must be sold in order to repay the mortgage when the borrower dies (in some cases, the heirs have the option of repaying the mortgage without selling the home).

For more detailed info, you can refer to :

https://en.wikipedia.org/wiki/Reverse_mortgage

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