When we reach retirement we can consider taking advantage of these years to live with ease and enjoy the things that we like the most. And, for this, why not get some income from our home or, if we had them, the apartment on the beach or the little house in the sierra without having to part with them. If you own a first or second residence, one of the possibilities is to take out a reverse mortgage.
The first thing is to weigh our alternatives taking into account what the needs are and combine them with our possibilities.
The reverse mortgage is a financial product offered by credit institutions and insurers. In reality, it is nothing more than a mortgage loan aimed at people over 65 years of age or who prove a degree of disability equal to or greater than 33% or in a situation of severe dependence or great dependence, exempt from the Tax of Documented Legal Acts (only in the gradual part) and with a significant reduction in the expenses of the notary and the Land Registry. But the real peculiarity is that the entity will not recover the loan until the death of the owner.
However, in particular we must pay special attention to the following conditions:
- Whether the loan or credit money is to be received as an income over a lifetime or as an income over a period of time.It may also be received in full at one time. Obviously, the fact that it is one modality or another causes the amount to be received to vary.
- If the loan is going to have a beneficiary, in addition, the owner of the property (when it is a couple, for example, in which only one party owns the property and the other does not).By designating a beneficiary we ensure that, in any case, the death of the owner and the beneficiary must occur so that the lender can demand the repayment of the loan.
- If it really is a reverse mortgage or is it a traditional mortgage loan (instrumentalized as a “maximum mortgage”). In the case of the reverse mortgage, the recovery of the debt by the entity will occur with the death of the borrower or, where appropriate, of the possible beneficiaries designated in the contract. At that time, the heirs can choose to cancel the loan, paying the principal plus interest, without paying anything else, or not paying. Ideally, in the event that they decide to cancel the debt is that the contract provides a period from the death so that the heirs can have enough time to process the inheritance and decide if this option is convenient for them, and even to be able to raise the money. If they are not interested, the entity will recover the loan with the inheritance assets. In no case, will the heirs be obliged to respond with their own assets. In the event that it is not a true reverse mortgage, when the loan expires, the entity can claim the reimbursement of the entire loan together with its interests (and interest on late payment could even accrue) without having to wait for death of holders or beneficiaries.
- If the mortgage falls on the owner’s home or on a second home.In the event that it is a second home, the advantages or benefits in the formalization expenses will not be applied.
In short, the reverse mortgage can be an option for retirement as long as, before hiring, all the pros and cons are well analyzed. In any case, it is recommended, as in any other loan, that before contracting both the pre-contractual information of the product (that is, both in the FIPRE and in the FIPER), as well as the draft deed, is well reviewed.