Throughout our lives, we must make the right decisions to achieve a peaceful retirement and enjoy our well-deserved retirement to the fullest.
However, relying solely on the public pension can cause some stress and uncertainty. Therefore, there are alternatives to get more out of our assets in certain situations and one of the least known is taking out a reverse mortgage.
What is a reverse mortgage?
A reverse mortgage is a mortgage loan through which the bank provides you with a periodic income or a one-time loan, using your home as collateral. It works exactly the opposite of a traditional mortgage: instead of requesting money to buy a house, you receive an amount corresponding to the value of your home, while you can continue enjoying it. Sometimes, it is preferred to opt for this type of product instead of bare ownership, since in a reverse mortgage the property does not change its name and possession of the home is not lost. This may be a point to consider if the applicant has children, as relevant debts are also inherited. The amount of the reverse mortgage income is directly linked to the value of the home, the age of the applicant and the format in which the loan will be collected: monthly, quarterly or single payment.
Essential requirements to apply for a reverse mortgage
Banks do not usually offer these types of loans easily and they can only be accessed if certain requirements are met:
- Be over 65 years old or be in a situation of extreme dependency.
- Own a home. If it is the habitual residence of the applicant, paying the Documented Legal Acts Tax will be avoided. However, a second home is valid.
- That the home is free of charges, and it is necessary to cancel mortgage loans before applying.
To these requirements we can add the banks’ preference for high-value homes, with which they can take greater advantage of profitability in the event that it has to be protected.
What happens in case of death?
Since it is a loan like any other, it is necessary to return the entire debt to the bank plus interest and extra expenses. If the applicant dies, the heirs must be responsible for paying the debt if they wish to keep the home. They can choose to:
- Pay the debt directly and keep the property.
- Sell the property to pay the debt.
- Sign a new mortgage to take charge of the previous one.
We must not overlook that this type of mortgage can also be canceled early at any time, without additional fees. Only the money borrowed until the day of cancellation must be repaid, plus interest and initial incorporation expenses.
Is a reverse mortgage the best option?
Deciding whether or not it is worth requesting this type of product will depend a lot on the situation of each pensioner.
There are some tax advantages, including tax exemption as it is considered a credit and not income. It can also be beneficial if the applicant is over 75 years old, since higher rents will be charged than if they apply at 65. In any case, before considering a reverse mortgage as a solution to a comfortable retirement,
It is preferable to focus on creating a balanced and constant investment portfolio throughout our working life.
