After retirement, you may come across situations when you have to borrow money from the banks. In such a situation, what should you do? Which loan instrument should you choose? Though there are several loan instruments available in the market, there is one loan instrument available only to the senior people and it is called a reverse mortgage loan (RML). Similar to RML, there is another loan product available in the market which is called a loan against property (LAP). Under both the loan products, the borrower gets a loan against the property mortgage, then what’s the difference and which one should they choose? Let’s find out the difference between RML and LAP and check out which one suits you best.

Also Read: What Is Reverse Mortgage And How Can It Support Seniors?

Difference Between Reverse Mortgage And Loan Against Property

RML is a loan product that suits seniors who are looking for regular income flow; on the other hand, LAP is a mortgage loan in which the borrower gets the lump sum amount.

In RML, the senior citizens have to mortgage their residential property and receive the agreed amount on a regular interval through instalments. The borrower also gets the option of a lump sum loan amount. At the end of the tenure, the bank asks the borrower to either repay the outstanding amount or transfer the property to them. Usually, banks require a margin of around 20 per cent in RML. Maximum tenure in an RML loan is up to 20 years. At the end of the tenure if the borrower dies, the legal heir can repay the total loan amount and get the property back from the bank. The bank can recover their loan money only through the mortgaged property and they can’t attach other assets.

Compared to RML, LAP is like any other regular secured loan. Any person above the age of 18 years (minimum age may vary from bank to bank) can apply for a LAP. The loan is disbursed in a lump sum and borrower has to repay the loan in EMIs. Loan tenure under LAP may go up to 20 years. Interest on LAPs is usually lower than the RML.

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Which Loan Option Suits You?

Before you apply for a loan facility, plan it very well. Choose the loan according to the application of the loan fund. If you need money in the form of an annuity to meet your regular financial needs and if you don’t have the resources to repay the loan amount, then you can opt for Reverse Mortgage Loan. However, if you need a loan to accomplish a specific task and plan to repay it within the stipulated tenure through regular EMIs, then you can opt for a loan against property. The interest rate on the RML is usually higher than the LAP. Choose the loan according to your eligibility status, financial needs and repayment comfort.

The author is an independent financial journalist.