(II) The reverse mortgage today

28 June, 2010 No Comments

Once the general description of what legally constitutes a reverse mortgage, I would like to get deeper on this subject from the practice.

In fact, we are trying to see the possibility that home ownership to be a source of income for retirement, because the properties are usually one of the main assets for people during their retirement age.

This type of mortgage assures the owner will receive a monthly amount in exchange for his home, keeping it as a place of residence to his death.

Normally, is possible to earn a starting spot sum, to pay the expenses resulting from the completion of the contract and the reforms that have to do, etc. Since that time, periodic amounts are charged; depending on the financial entity, they can reach 90% of the initial appraisal.

The operation can be canceled at any time, but typically would receive the income until the death of the holder, when the heirs will receive the property and their loads. This leads, today, that some reverse mortgages are being made on second homes, as a way to dispose of apartments that are not selling in the market.

On the other hand, the initial idea of a reverse mortgage, which originated about the year 2005, was to have a high valuation of the property and thus receive a higher monthly income. But now, valuations are lower, that’s why the income that can be achieved with the same property are much lower than those obtained earlier, due to a fall of the housing market.

There is another element that can create uncertainty for the bank to make reverse mortgage: life expectancy is now set to reach the 80 years in many cases. The bank wants to make sure income, which adds costs to the operation to avoid reaching what the financial market is called “negative equity”, which means that the debt exceeds the property value.

To eliminate the obstacles that appear to have the reverse mortgage at the moment, there is the idea that in Spain, “who has an apartment has a treasure”. Therefore, older people think well before taking a reverse mortgage to offset income his small pension. Furthermore, the sons are not yet aware that this house belongs to their parents, and so they are not obliged to let them it in heritance.

(I) A reverse mortgage: home ownership as an ATM

27 June, 2010 No Comments

The reverse mortgage becomes a formula created for retirees supplement thier pensions, so that older homeowners may obtain some extra money by charging an annuity, in exchange for their home, without sacrificing ownership or use thereof.

The requirements of the law are:

• That the applicant and the beneficiaries are 65 or older or are suffering from severe dependence.
• That the property on which the mortgage is either the main residence.
• That the debtor of the loan amount available through any regular or unique.
• That the debt will only be payable by the creditor when dies last borrower.
• That the property was rated ans insured against damages.

With a reverse mortgage, homeowners can continue living in their home, without having to leave it, until their death. This assures that they will remain owner of the property.

When the owner of mortgage dies, his heirs may get the house, returning to the bank the payments it has made the mortgage more interest. It corresponds to the heirs liquidate the situation with the credit institution. In this case, the institution can not demand any compensation for the cancellation of the mortgage. Once they have paid and the heirs have released its load housing mortgage, can inherit it in the same way as any other good.

If the heirs do not want or can not cancel the mortgage, the institution may foreclose and collect the debts due more interest. But the agency may only collect the goods they have in the inheritance, without being able to collect anything from the personal capital of the heirs.

In this type of mortgage, the homeowner receives a periodical payments or a single payment for a maximum amount, which determines the percentage of the valuation at the time of the mortgage creation, and to reach that figure, they stop have income, but the debt continues to generate interest.