2023-09-13 19:30:20
This week, the Ministry of Economic Affairs authorized Santander and Mapfre to grant reverse mortgages, which will be called Santander Mapfre Hipoteca Inversa. After this authorization, both entities will advance with the procedures for the commercialization of this product, which could go on the market “before the end of the year 2023” and will be done exclusively through the Santander and Mapfre office networks in Spain. Mapfre sources confirmed, adding that from now on the processes for creating the product will begin.
But what really is a reverse mortgage and what advantages does it offer? The reverse mortgage has been regulated in Spain since 2007, but it has hardly been successful despite the fact that it is presented as a financial product that can reinforce the public pension granted by Social Security. What many do not know is that the solution to the challenge of the sustainability of public pensions could involve another, more unknown alternative: the sale of the bare property. And, despite losing ownership of the home, you get much more money and you can continue living in it until you die. These are the characteristics of the reverse mortgage and bare ownership, and their respective advantages and disadvantages.
The reverse mortgage is a mortgage loan that allows people over 65 years of age to obtain, with the guarantee of their home, a monthly payment with which they can supplement their income for a specific period of time, with the possibility of receiving these payments throughout the entire period. life.
According to Banco Santander itself, “while in a traditional mortgage the client receives the total amount of the loan from the bank and makes monthly payments to amortize the debt, with the Reverse Mortgage they will be guaranteed a monthly payment that they will not have to return during their lifetime. After your death, your heirs will have to return the loan and its interest. The monthly amounts received through the Reverse Mortgage, until the set term, are not subject to Personal Income Tax (IRPF). In addition, this monthly income can be an additional supplement to other income you may be receiving such as pension or other funds; and the loan can be paid off early if you wish.
People over 65 years of age who own the home and who do not have other mortgages or charges on the property can apply for the Reverse Mortgage. The property must be the habitual residence and the value of the property must exceed certain thresholds. After payment of the debt, if there is any surplus, it will be for the heirs.
According to real estate consultant Eduardo Molet, the reverse mortgage allows you to collect a small monthly payment. On the other hand, by selling the bare property you can get up to 123,000 euros for an average-type home (about 70m2 in a city). With the reverse mortgage “normally, it is not possible to collect what is earned from the sale of the bare property, compensating for the great disadvantage it presents, which is the loss of the property. Furthermore, as with the reverse mortgage, they can continue living in their home for the rest of their lives without worries,” explains the expert.
Advantages and disadvantages of reverse mortgage and bare ownership
To choose between one of these two options, you have to weigh the advantages and disadvantages. If we talk about profitability, selling the bare property is the best alternative. “Although it is difficult to estimate in what proportion one is more advantageous than the other, because it depends on the years that the usufructuary or owner is earning and lives, the truth is that the sale of the bare property is a priori more profitable,” he explains. Eduardo Molet, who illustrates the differences between one and the other with an example. An 80-year-old person with a home worth 400,000 euros, if he takes out a reverse mortgage, receives a monthly income while he lives of about 800 euros per month or 160,000 euros at once, but if he sells the bare property, he receives about 280,000 euros. In the case of younger owners (68-70) years old, for a property valued at 240,000 euros, they would receive 170 euros per month with a reverse mortgage, and about 120,000 at a time by selling the bare property.
The negative part of the sale of bare property is the loss of the property. Even so, life usufruct is maintained, that is, the seller can continue living in the property until the end of his life. Returning to the advantages, with this sale, the expenses will also be lower for the seller, since he would only pay those corresponding to the ordinary consumption of the home (water, electricity, gas…), while the investor would take charge from that moment of the IBI and the extraordinary benefits of housing.
With the reverse mortgage, even though the client offers their home as collateral for the loan, they maintain ownership and use until they die. In fact, the heirs can choose between keeping the property or selling it. In the first case, they must settle the debt, returning the money borrowed to the financial institution, either with their own funds or by taking out a new mortgage. Molet indicates that the term to return all the loan money is one year with a high interest rate (6% plus expenses). If they do not do so, they will lose the inherited home.
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