Mortgages are not only used to buy a home, but also to get extra income. It is precisely the function of the reverse mortgage. It is a type of mortgage loan for which the bank pays the applicant a monthly rent in exchange for offering their home as collateral. Now it is becoming more popular, after being missing for several years, as a way to supplement the pension.
Why is it called inverse? Because unlike conventional ones, the debt does not decrease over time, but rather increases, with a third party finally taking charge of assuming it. This is where the second key point comes in: fundamentally aimed at people over 65although it can go up to 70 depending on the bank, it is his heirs who will end up paying the debt.
Thus, it works the other way around than other mortgages: the person who requests it, who must own a home, you do not have to repay the money that you have been lent, but your heirs will have to take over the loan when the applicant for the reverse mortgage has died. Below is a more in-depth explanation of how it works and the requirements that are required to apply for it.
Reverse mortgage requirements and how it works
The reverse mortgage allows you to complete your pension by putting home warranty. It should be noted that ownership of it is not lost, since the applicant can live there until his death or even rent it. In fact, the subscriber never has to settle the debt with the bank, but they are their heirs those who will have to assume the mortgage loan, to which the corresponding interest is added.
Continuing with its operation, you can choose a temporary reverse mortgage or an annuity. The first, the temporary reverse, allows you to receive a monthly fee for a period previously set in the contract. The total amount to be received will be the equivalent of the value of the home, ceasing to collect it once it has been covered, although you can also opt for a single payment.
For its part, the lifetime reverse mortgage is the one that guarantees a monthly income to its owner for life, although the monthly amount to be received will be lower for this reason. An important aspect to remember is that if the full value of the home was received through monthly rent, the use of the home would not be lost. Even as explained BBVAthere may be two holders in the mortgage, expiring once both have died.
As for his contract, in addition to the lender (which is usually a bank) and the client, an independent advisor has to intervene. This is dictated by law, in the case of a measure to prevent the lender from taking advantage of the situation. In this contract, the applicant also has to choose between receiving the rent obtained monthly, as is the case in most cases, or in a single payment. In this sense, the amount of rent will depend on the following factors:
- Home value: the higher the appraisal, the higher the rent to be received.
- Age of the owner, who will be the beneficiary.
- From the form of perception.
Now, taking into account that the recipients of the loan do not have to pay it back, How is the mortgage repaid? Your heirs will have to do it, deciding whether at the time of death they sell the house to pay the debt, pay it with their own funds or decide to take out a new mortgage to pay the remaining debt.
Requirements to apply for a reverse mortgage
According to the Bank of Spain, these are the conditions that must be met to apply for a reverse mortgage:
- Being over 65 years old.
- Have a disability equal to or greater than 33%.
- Having a severe dependency or great dependency.
- Be the owners of the home, whether it is for habitual use or functions as a second home. If used as a habitual residence, there are tax advantages such as avoiding the payment of Documented Legal Acts (AJD).
Reverse Mortgage Expenses
Like all mortgages, the reverse also entails a series of expenses. These are the following:
- Appraisal of the house at the owner’s cost.
- Tax on Documented Legal Acts, although it is not paid if it is a habitual residence.
- Registration, notary and loan opening commission.
- Mortgage interest.
Which banks allow you to request it? As reported by Roams Finanzas, today it can only be requested at Banco Santander through a collaboration with Maphre.
Advantages and disadvantages of reverse mortgages
The main advantage of the reverse mortgage is get extra income to complete the pension, being especially useful for those people who have not had a good benefit left. In addition, there is the fact that an asset is being monetized, in this case a property, without losing ownership or its use, since it does not have to be sold or rented and, therefore, you can continue to reside in the home. .
However, it also has a number of drawbacks, such as the possibility of having to hire a annuity insurance derivatives. Also the fact that the amount of rent to receive depends on the value of the home, which can fluctuate depending on the state of the market. Finally, there is the obligation that the heirs have to take care of the payment of the debt.