In Spain, there are more than 8 million people over 65 with property in their own homes. Accumulate savings of 600,000 million euros in housing compared to 120,000 million in pension plans for the total population.
However, last year only 45 reverse mortgages were commercialized in our country, according to the figures offered by the General Council of Notaries. But, let us start at the beginning. What is a reverse mortgage? And why are so few marketed?
It is a savings product for people over 65 or people with disabilities that allows you to obtain income for your home. As its name suggests, this product works contrary to the mortgage of a lifetime. After the appraisal of the property, the bank grants a loan to the owners for an amount that usually ranges between 20 and 45% of the appraisal and that can be received in three ways: in one fell swoop the whole amount, through monthly rents, or the combination of these two.
The particularity is that the debt that is generated, plus interest, which is usually 5% per annum, will pass to the heirs in case they want to keep the house. People who subscribe to the reverse mortgage will continue to be owners and may continue to live there until they die. They will be able to access it if the house has a minimum value of 150,000 euros and they live in cities with more than 45,000 inhabitants.
The options for the heirs
In this regard, the heirs also have different options. Within a year they must decide if they want to keep the house, for which they will have to settle the debt with the bank, sell it to pay the debt and obtain a surplus value if possible, or deliver the house directly to the entity and this is precisely one of the reasons why in Spain hardly reverse mortgages are commercialized: entities do not want more real estate.
If banks are not interested in reverse mortgages, they will not offer them, so incentives should exist for entities. If they do not offer them, individuals do not know them.
Which brings us to the second reason for the scarce penetration of this product among the Spanish population, ignorance. Only 12% of owners over 65 know that this alternative exists.
The reverse mortgage allows the elderly to convert these savings, which is immobilized in the home, into liquidity
The only company to succeed in marketing the product in Spain has been Óptima Mayores with the Portuguese bank BNI (Banco de Negócios Internacional) since no other entity in the territory has wanted to do so.
Of course, in 2019 you will see banks and insurance companies entering this business. But it has cost a lot to convince them.
First, because of the real estate and financial crisis and, later, because they believed that there is a reputational risk since it is a vulnerable sector of the population.
Pros and cons
The most obvious benefit of reverse mortgages is to be able to convert the property immobilized in a real estate into liquid money and, in this way, supplement the pension while continuing to live on the property.
Another advantage is that the client only has to pay the appraisal since the rest of the costs associated with the constitution of the mortgage are borne by the bank, which will then be added to the final loan. On the other hand, it can be cancelled at any time, satisfying the debt contracted up to that moment. However, this product also has buts. One of them is that one of its fiscal attractions no longer exists. This is the exemption of the Tax on Documented Legal Acts since for a few months it has been the bank that assumes that expense.
The money received for the property is not taxed by the IRPF as it is a loan or credit account.
Yes, the money received for the property is not taxed by the IRPF to be provisions of a loan or credit account. On the other hand, if what is intended is to receive a lifetime salary, it is necessary to take out annuity insurance.
If the reverse mortgage is made in its simple form, that is, without contracting deferred annuity insurance, the longevity risk will not be covered, so if the interested party survives the estimated age of the operation, he will stop receiving complementary income.
Another insurance that can be contracted, is the amortization so that an insurance company pays the balance that you have arranged at the time of death. But these insurances, which would guarantee that the heirs received the property without charge, in the case of elderly people, are very expensive. Also, taking into account that the bank only grants between 20 and 45% of the appraisal, this product is more advantageous for those properties of high amounts.