A reverse mortgage is a type of loan provided against a house property to people aged 60 and above in a lump sum or monthly instalments, as long as they live there, which is repaid when the borrower dies, sells the house or permanently shifts to another location. The loan is calculated based on the property’s current market value and the yearly increase in its worth. A reverse mortgage can suit those with limited income after retirement to meet their monthly expenses.

This type of loan allows senior citizens to access funds without selling their property. Additionally, unlike a traditional loan, the borrower doesn’t require to pay the money in his lifetime.

Also Read: 4 Ways Senior Citizens Can Fight Loneliness

How Does A Reverse Mortgage Work?

In a reverse mortgage, the lender pays the homeowner according to his choice of disbursal frequency. The borrower doesn’t need to pay any loan interest and fees upfront, which are added to the loan balance. Unlike a traditional mortgage, which uses the home as collateral, the homeowner retains ownership of the house while the loan continues. Upon the homeowner’s relocation or death, proceeds from the house sale, including the principal, interest, insurance, and related fees, are repaid to the lender. Furthermore, heirs may opt to settle the mortgage to retain house ownership. Thus, a reverse mortgage offers senior citizens access to home equity without selling their property, enabling them to care for their financial needs.

How Does It Help Senior Citizens?

Seniors can benefit from a reverse mortgage in several ways:

Cash Availability: Thanks to the reverse mortgage option, seniors can access home equity without selling their property. This arrangement guarantees them a fixed monthly income to care for their living expenses, such as medical bills, house improvements, etc.

Supplemental Income: Reverse mortgage payments can be an additional income source, giving seniors greater financial freedom and stability.

No Monthly EMIs: In a reverse mortgage, the homeowner is not required to pay equated monthly instalments (EMIs); instead, the lender pays the borrower at a pre-determined frequency. So, seniors no longer have to worry about loan repayments, ensuring free cash flows.

Also Read: What Is Section 56 Of Income Tax Act And How Does The Rule Apply?

Continued Home Ownership: With a reverse mortgage, seniors can access their home equity while retaining the home ownership, provided they live in the property.

Flexible Payment Choices: Reverse mortgages offer payment alternatives such as a lump sum, monthly instalments, or any combination of credit lines. Seniors can select the option that best fits their objectives and financial situation.

Finally, a reverse mortgage can be a helpful financial instrument for senior citizens to ensure access to cash and financial security during their retirement years.