One of the most important decisions in a person’s life comes at the time of buy your first home. To do this, most potential homeowners take out a mortgage, so this term is in the public domain.
However, a loan that is little known to people is the so-called “mortgage loan”, which, although still linked to home ownership, it has a completely different nature and is aimed at a very specific type of user.
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What is a reverse mortgage?
As a general rule, we call reverse mortgages those transactions reached with a financial institution to convert the value that a property represents into money, always maintaining the property rights.
It is the bank that pays a monthly fee to the customer in exchange for the latter who offers his home as collateral for these loans.
“This is a type of mortgage loan in which the traditional concept of a mortgage is completely overturned, as it is the bank that pays a monthly fee to the customer in exchange for the latter by offering their home as collateral for these loans”, he explains. to 20 minutes Ferran Font, Director of Studies of the real estate portal piso.com.
Potential audience: over 65
The potential audience for this product is customers over the age of 65 – or 70 in the case of other financial institutions – who own a home, as the objective of the reverse mortgage, Character Details, is to supplement the income of the people. of old age reached retirement.
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What types of reverse mortgage exist
Alike, Carles Solé, responsible for the formalization of mortgages at Tecnotramit, points out that there are different types of reverse mortgage, each with their respective terms and conditions.
First, the amount in question of monthly deliveries – or individual deliveries in the event that it has been agreed by both parties – to be paid by the owner. It will increase according to your age and the value of the mortgaged home.
«In the same way», continues the expert, «it also intervenes here if the reverse mortgage contracted is for life or temporary. In the first case the amount to be received will be lower, while in the second, as a general rule, it will be limited until the loan is reached in the amount of the appraisal of the house “.
How do you repay a mortgage loan?
Another of the peculiarities of the reverse mortgage is its repayment method. In this case, Solé details, “it does not necessarily have to be performed by the borrower for the duration of the contract, but it is up to his heirs at the time of his death”.
How does it affect the heirs?
For this reason, when choosing this specific type of loan, the beneficiary must keep in mind that the repayment of the amount he has received will fall on his heirs, since they will inherit not only the property, but also their reverse mortgage. .
“At this point,” says Font, “the heirs in question will have to meet and decide how to deal with the remainder of the debt that has accumulated over time.”
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The director of studies of piso.com reports tthree valid alternatives to perform this process. First, if enough money is available, the heirs can use their own funds to pay off the loan. Since this case is the least common, the main routes are reduced to two.
“On the one hand, they can choose to sell the property in question to obtain liquidity and raise sufficient funds to pay off the debt. Although, on the other hand, they could also resort to the option of taking out a new mortgage on the same inherited home so that these payments help them pay off the residual debt, ”he concludes.
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