Choosing between reverse mortgage and loan against property requires careful consideration of individual circumstances and financial goals.
When it comes to borrowing against your property, two popular options can be considered – reverse mortgage and loan against property. Both these instruments provide access to funds, but it is crucial to understand their nuances to make an informed decision.
Let’s understand the key aspects of reverse mortgage and loan against property to make the right choice according to your unique circumstances.
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Reverse Mortgage: Unlocking Equity
Reverse mortgage is a financial product designed exclusively for senior citizens, aged 60 years and above, who own a residential property. It allows them to convert a portion of their home’s equity into a regular stream of income or a lump sum amount.
The borrowed funds are not required to be repaid during the borrower’s lifetime and are recoverable only after the borrower’s demise or when the property is sold. This mechanism enables retirees to utilise the value accumulated in their property without the burden of monthly repayments. However, the borrower should be the sole or joint owner of a self-occupied residential property to apply for this mortgage loan.
Loan Against Property
Loan against property, on the other hand, is a general-purpose loan offered by financial institutions, which allows property owners to borrow money against the value of their residential or commercial property. It is available to individuals of all age groups, provided they possess a piece of property with clear titles. Unlike reverse mortgage, a loan against property requires regular repayment of the principal amount and interest, typically over a fixed tenure.
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Factors to Consider
Eligibility: Reverse mortgage is specifically designed for senior citizens, while loan against property is open to all property owners, regardless of age. If you are a retiree seeking financial assistance, reverse mortgage might be the more suitable option.
Tenure and Repayment: Reverse mortgage offers a tenure that extends until the borrower’s demise, ensuring a steady income stream throughout their lifetime. In the case of loan against property, the tenure is typically shorter, and monthly repayments are mandatory. If you are comfortable with repayments or require funds for a specific purpose within a defined timeframe, a loan against property might be more appropriate.
Income: Reverse mortgage does not mandate regular income or employment, making it a viable choice for retirees with limited financial resources. Loan against property, however, often requires proof of income or financial stability, which can be a barrier for some individuals.
Ownership: Both options require the ownership of a property. In the case of reverse mortgage, the property must be self-occupied, while loan against property can be availed against self-occupied, rented, or commercial properties. The type of property you own, and its usage can influence your decision.
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Choosing between reverse mortgage and loan against property requires careful consideration of individual circumstances and financial goals. If you are a senior citizen seeking a regular income stream without repayment obligations, reverse mortgage is likely to be the more suitable option. On the other hand, if you need a lump sum amount or have specific financial requirements with the ability to make regular repayments, a loan against property may be more appropriate.
It is advisable to compare interest rates, and thoroughly understand the terms and conditions before making a final decision. The choice should align with your long-term financial well-being.
Reverse Mortgage Vs Loan Against Property: Interest Rate Comparison
Compiled by BankBazaar.com
Note: Interest rate on Reverse Mortgage and Loan Against Residential Property (LAP) for all listed (BSE) Public & Pvt Banks considered for data compilation (excluding small finance banks). Banks for which data is not available on their website are not considered. Data collected from respective bank’s website as on 20 June 2023. Banks are listed in ascending order on the basis of interest rate on reverse mortgage loan i.e. bank offering the lowest interest rate on Reverse Mortgage is placed at top and highest at the bottom. Lowest interest rate offered by the bank is shown in the table (irrespective of loan amount and tenure); Interest mentioned in the table is indicative and it may vary depending on bank’s T&C.
