Seguros y pensiones para todos

Reverse mortgages: when your house pays you

Reverse mortgages: when your house pays you

Home > Blog > Reverse mortgages: when your house pays you

02.Jun.2021

In Spain there are approximately six million people receiving a retirement pension. Of this figure, almost half earn less than 900 euros per month, so these people face significant difficulties in meeting all their expenses.

However, 90% of this group of over-65s own their home. For all of them, the reverse mortgage option can be an interesting alternative to give them greater peace of mind.

For seniors and people with disabilities

Not everyone can opt for this formula: the mortgage holder must be 65 or older. People who can accredit a level of disability that is equal to or greater than 33 percent, or severe or major dependency, can also take advantage of reverse mortgages.

How it works

The reverse mortgage is, as its name suggests, the opposite of a traditional mortgage. In a standard mortgage taken out to buy a property, the beneficiary of the loan pays an instalment each month which gradually reduces the amount of money they owe to the financial institution. In the case of a reverse mortgage, it is the financial institution that pays the beneficiary until their death, at which point the heirs can decide to either hand over the property to the institution or buy it back.

Main concerns

Does the reverse mortgage change the ownership of the house? Does it become the property of the financial institution when the contract is signed? This is one of the main concerns that may arise with this product, but the answer is a resounding NO. For the entire duration of the reverse mortgage, the property remains in the name of its owner and there are no changes of ownership in favor of third parties. Owners do not lose their real estate since it is their guarantee to receive the loan to complement their pension.

Can it be canceled?

In the conditions of the reverse mortgage, details can be agreed such as whether the money is received in a single payment or as regular income, with the frequency chosen by the mortgage holder – monthly, quarterly, etc., or for life, which is the most recommended option. And, of course, there is always the possibility of reversal. Like regular property mortgages, reverse mortgages also have cancellation rights that the beneficiary can exercise at any time.

Transparency

It is very important that the entities offering this option are transparent and provide the people who are interested in it with clear, accessible, comprehensive and simple information. This is a very interesting option, but it is not without a certain complexity and, most importantly, it is specifically aimed at vulnerable groups.

You may also like…

Does the savings envelope method work?

Does the savings envelope method work?

It should help you make sure that you spend what you want and on what you want. Also, if you are well organized, you will even be able to save every month. What is the savings envelope method? This method is very simple. It consists of dividing your income into...

Cognitive biases that condition what you buy and how you invest

Cognitive biases that condition what you buy and how you invest

What are cognitive biases? Cognitive biases are mental shortcuts in our brain when we receive and process information so that we can make a decision and act accordingly. They are like automatic brain responses based on years of evolution designed to help us act...

How to make the most of your cash

How to make the most of your cash

And the fact is that, with high inflation rates, your emergency fund savings lose their value month by month. In other words, this money is worth less over time as the cost of living rises. Is there anything that can be done? To begin with, do not lose sight of the...

What should you do with your savings in a recession?

What should you do with your savings in a recession?

However, the actual fall in the Eurozone was 0.1% in both the last quarter of 2022 and the first quarter of 2023, closer to zero growth than to a sharp economic contraction. In Spain, the GDP has not fallen since the first quarter of 2022, but the fact that the German...

The power of automating your finances and certain habits

The power of automating your finances and certain habits

It's like a vicious circle that prevents you from moving forward. The reason for this is very simple: they are processes that depend on your willpower. Even when you build the right habits, it's easy to have slip-ups that undermine your confidence and make you feel...

Should you sell your investments to pay off your debts?

Should you sell your investments to pay off your debts?

The truth is that there is no one-size-fits-all answer. The most appropriate solution will depend on both the type of debt and your investment profile, which will determine to a certain extent the returns you can achieve with your investments. Safe profit vs....