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Mortgage loans are high-ticket credit facilities wherein borrowers need to provide an asset they own as collateral with financial institutions. The loan is then offered, calculated against the value of such property. Reverse mortgage loans follow a similar underlying principle. However, these two credit facilities – reverse mortgage and mortgage loan – can be distinguished based on a few grounds. Difference between mortgage loan and reverse mortgage loan 1. Targeted borrowers The Indian government introduced the reverse mortgage scheme in 2007 specifically for the senior citizens of the nation. In most cases, this demography comprises retired individuals who do not hold a significant source of income post-retirement. This scheme facilitated such individuals to meet their lifestyle expenses by mortgaging their residential properties against periodical loans from the respective financial institution. On the other hand, a loan against property is not specifically designed for any age group but instead acts as a financing option for large expenses. 2. Repayment method In the case of reverse mortgage loans, borrowers do not need to repay the loan amount during their lifetime. Instead, when a borrower and his/her spouse passes away, the respective financial institution sells off the property to realise the repayment amount. A borrower availing a loan against property needs to repay such loan through EMIs within a specific tenor, usually ranging up to 20 years or amounting to 240 EMIs. 3. Ownership of mortgaged property The financial institution assumes permanent ownership of the mortgaged property by default in case of a reverse mortgage loan in India, barring the instance where a borrower or anyone related to such individual repays the loan amount to assume ownership back. Conversely, in case of a loan against property, a financial institution only assumes ownership of a property until the repayment is made in full. Henceforth, individuals shall duly assess their property ownership objectives before applying for either a reverse mortgage or a mortgage loan.
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