You’ve been thinking about taking out a reverse mortgage, but you have doubts…
When we retire, we usually think about living a stress-free life and enjoying the things we like. Then, why not make some profit from our home or, if we own it, our apartment by the beach or our house in the mountains, without having to sell them? If you are a home owner or own a holiday house, you may consider taking out a reverse mortgage.
First of all, we should compare the different options available bearing in mind our needs and possibilities.
A reverse mortgage is a financial product offered by credit institutions and insurance companies. It’s actually a mortgage loan aimed at people over 65 years old or with severe or profound dependency. It’s exempt from Documented legal acts tax (only on the gradual part) and has a significant reduction in notary and registration fees. The peculiarity of this product is that the credit institution will not recover the borrowed amount until the loan holder’s decease.
But, we must pay special attention to the following conditions:
- If the money from the loan or credit will be received as a life annuity or as an income throughout a given period of time.
You may also receive the total amount in one single payment. The amount to be received will obviously depend on the selected option.
- If the loan has another beneficiary, apart from the property owner (for example, a couple where only one of the partners is the property owner).
By naming a beneficiary we ensure that the credit institution will not be able to demand the reimbursement of the loan until both, the property owner and the beneficiary, pass away.
- Whether it’s actually a reverse mortgage or a traditional mortgage credit (instrumented in the form of a “hipoteca de máximo”).
With a reverse mortgage, the credit institution will receive the reimbursement of the debt once the borrower or the possible beneficiaries named on the contract, if any, pass away. At this point, the heirs may either decide to cancel the loan by repaying the amount received plus interest, without having to pay anything else, or not pay at all. If they choose to cancel the debt, the contract should ideally establish a period of time from the date of the decease so that the heirs have enough time to sort out the inheritance and decide if this is the most convenient option, and even to collect the money they need. If they finally decide they are not interested, the credit institution will then use the inheritance goods to reimburse the debt. In no case will the heirs have to respond with their own goods.
If it’s a genuine reverse mortgage, the credit institution will be entitled to request the reimbursement of the total loaned amount, plus interest, upon maturity, without having to wait until the holders’ or beneficiaries’ decease. Late payment interest may even be accrued.
- If the mortgaged property is the holder’s main residence or a second residence.
Benefits on formalisation or arrangement costs will not be applied in the case of a second residence.
In short, a reverse mortgage may be an option to consider at the time of retirement, but pros and cons must always be examined first. As with any other loan, the suggestion is to always carefully read the product pre-contractual information (this is, both the FIPRE and FIPER forms), as well as the draft of the deed.
The best thing is to enquire if we have any doubts.