2023-09-13 08:30:20
In recent years the reverse mortgage has begun to be offered by various banking entities in Spain, in addition to being present in advertisements in the media, which promise that it is a type of loan designed for those over 65 years that allow you to receive a loan based on the value of your home, but without actually selling it to the financial institution and that will be received until the user’s death or until you want to cancel it, after which the debt incurred must be paid. But what does this type of mortgage really consist of?
Reverse mortgages, an opportunity to live better or a long-term problem?
According to the BBVA bank, a reverse mortgage is a “financial product intended to convert the value of a home into monthly income” and is usually advertised as a complement to the pension for retired people.
As the bank highlights, one of the requirements that is usually required to be able to apply for this type of mortgage is to have over 65 years, in addition to other factors such as dependency cases coming into play. It is also necessary that applicants be owners owners of a home, which will usually be the habitual residence, which allows exemption from the Documented Legal Acts Tax (which will apply if the reverse mortgage is signed with a second residence).
With the reverse mortgage the applicant receives a renta which depends on valor of housing and age of the person, The older you are, the greater the monthly income that will be received. On the other hand, it will also depend on the type of mortgage that is signed, which may be lifetime, temporary that of unique arrangement.
But not everything seems to be rosy, for example, the doctor in Economics and professor at the Complutense University of Madrid, Carlos Sánchez Mato, is a detractor of this type of practices and summarized in his account of Twitter/X the main pros and cons of this type of mortgage, which he considers “a timo gigantic”.
Among the attractions that the economist points out that reverse mortgages have are the extra money to complement the pension, that the home remains the owner’s and if it is a second home it can be rented. Furthermore, the loan money does not have to be returned immediately, but usually doing so will be task of the heirs when the person dies. Regarding the latter, BBVA highlights that the heirs will receive ownership of the home and the attached debt, so they have several options: cover the debt with a new mortgage, pay said debt or sell the housein which case if there is a difference between the debt and the sale value, they could keep that money.
Sánchez Mato also highlights a series of disadvantages in his thread. The first the Low value that the mortgaged will receive in relation to the value of the home, especially when compared to the interest (which is higher than that of a normal mortgage). It also highlights that the home can only be sold prior cancellation of the debt, many times with what is obtained from the sale itself. In addition, if the value of the home does not cover the entire debt, it may lead to the bank embargo more properties of inheritance.
The economist also points out that this type of mortgage can be linked to insurance “abusive and very expensive to cover cases of non-payment or loss of value of the property” and that in many cases “the rent to be collected is not updated so the capital will go losing value for the price of inflation.”
The pros and cons of this type of mortgages must be taken into account when requesting and signing this type of financial products.
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