2023-09-25 14:19:20
“The reverse mortgage, the great unknown”, “The return of the reverse mortgage”, “The reverse mortgage reaches Spanish banks”. This financial product has made headlines in recent days because, indeed, although it is still very unknown in our country, some large entities, such as Banco Santander and Mapfre, are going to launch it this year after obtaining the approval of the Ministry of Economic Affairs. But what is it, who is it aimed at and, most importantly, what risks does it entail?
Until now, they only granted reverse mortgages Caser, Catalana Oeste and Caja de Ingenieros. They were also accessible through Óptima Mayores. Now, this product of Anglo-Saxon origin regains prominence in Spain boosted by increasing life expectancy and doubts about the amount of future pensionss.
WHAT IS A REVERSE MORTGAGE AND HOW IT WORKS
In a very summary way, the reverse mortgage is a type of mortgage loan in which the banking entity pays a monthly rent to the client in exchange for him offering his home as collateral.
As its name indicates, works inversely to a traditional mortgagesince in this case it does not have to be returned month by month and it is the bank that pays the owner of the home while maintaining the property and residence.
The amount of the total credit will depend on the market price of the home, the age of the person signing the mortgage and the form of perception, which in this product has three possibilities: as single capital, temporary income or life annuity.
The reverse mortgage does not have to be returned until the term agreed in the contract expires or until the holders die and the heirs assume the inheritance and, with this, the debt, which they have up to 12 months to pay off. It is designed so that at that time the debt is always less than the value of the home, so the heirs normally sell the house, pay off the debt and keep the difference.
One thing to keep in mind is that The interest on this loan is much higher than those of traditional mortgages.
REQUIREMENTS TO ACCESS A REVERSE MORTGAGE
This product is specially aimed at clients over 65 years of age or affected by severe dependencywho are owners of the home in question and who want to obtain extra money in their retirement.
Besides, The value of the home must not be less than 150,000 euros and must be located in a provincial capital.
Furthermore, there should be no additional mortgage loan.
TYPES OF REVERSE MORTGAGES
Lifetime Reverse Mortgage: guarantees a monthly income for the life of the mortgage holder. Since there is no maturity date, the monthly income received is less than that of a temporary reverse mortgage.
Temporary reverse mortgage: A monthly fee is received for the period of time established in the contract. The total amount will be equivalent to the value of the home. Once the heat of the home is covered, the rent is no longer collected. In this modality, the income is not taxed on personal income tax.
Single Draw Reverse Mortgage: The appraised value of the home is received in a single payment at the beginning of the mortgage. A study by the Organization of Consumers and Users OCU carried out in 2022 concluded that “There is a clear need for liquidity during retirement, and at the same time about 88% of retirees own their home”. But is the reverse mortgage a suitable product today to help solve this problem? The OCU responds that “for the reverse mortgage to be an effective, economically efficient and interesting instrument to obtain liquidity after retirement, the supply would have to be increased and costs significantly reduced and, above all, the interest rate differential with respect to mortgages for “housing acquisition”. AND recommends that interested persons obtain detailed information and seek independent advice to assess the advantages, disadvantages and alternatives. “In general, it is recommended also involve the heirs before hiring, since in many cases it will be possible to find better solutions for everyone,” considers this organization.
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