There are many financial alternatives so that the elderly can increase their income when the time comes for retirement. Although it is not yet a widespread product in Spain, the reverse mortgage has become a solution with many benefits for those who decide to apply for it.
Alternatives to obtain additional income with housing
The need to increase income is the main reason to apply for a reverse mortgage. As explained by the Bank of Spain in its guide to access this product, there are four types of operations to obtain additional income with housing. The main difference between them is the transmission or not of the property.
- If ownership of the dwelling is transferred:
- Housing pension or real estate annuity. Through this operation, the ownership of the property passes to an insurance company but retaining its usufruct for life.
- Transformation of housing into an insured life annuity. Only for people over 65 years old. The advantage of this type of operation is that it leaves the capital gain that the home or the patrimonial element has exempt from tax.
- No transfer of ownership:
- Simple reverse mortgage. The level of income received is higher and the owner can continue to inhabit the house.
- Reverse mortgage combined with deferred annuity insurance. As in the previous one, the owner can continue living in the property and also ensures that throughout his life he will have a fixed income level.
Advantages of the reverse mortgage
The reverse mortgage is an interesting financial alternative to obtain additional income for advantages such as:
- The income that the beneficiary receives is regular, but he does not lose ownership of the house.
- It is the heirs, after the death of the owner, who decide whether or not to maintain the ownership of the house. In the event that this is the case, they must take care of the debt whose amount will depend on the number of years during which the owner received the rent.
- If combined with deferred annuity insurance, the receipt of a monthly income for life is guaranteed from a certain future moment. It is contracted at the beginning of the operation and charged to the loan, so it is not necessary to advance any amount.
- A guarantee is not required when hiring this product, since it is the house itself that works as a guarantee.
- If the income is received periodically, it is exempt from paying taxes.
- Its formalization is exempt from payments on property transfers and documented legal acts.
Aspects to consider before hiring this product
- There are factors that must be kept in mind before applying for a reverse mortgage:
The appraisal of the property. The client can submit an appraisal proposal (as long as it comes from an approved appraiser) and the entity must accept it as long as it is in force (that is, during the six months after its issuance). - The income that the beneficiary will receive depends on his life expectancy and the value of the property. It can be a one-time amount or given periodically, temporarily or for life.
- In the case of temporary disposal, when the client is no longer entitled to receive further funds, the capital must not be returned until the death of the last of the beneficiaries. Of course, the debt continues to generate interest.
- On the contrary, if it is agreed to have an annuity for life, the beneficiary will receive a certain amount of money until his death. Of course, it is most likely that the sum delivered is less.
- Age. The duration of the contract is extended until the death of the holder, but its signature can be advanced depending on personal circumstances. For example, for those who suffer from some type of disability it is advisable to advance their application to be able to enjoy more time of its advantages.
- Keep in mind that its effects extend beyond the person who contracts the mortgage. After his death, if the heirs have an interest in maintaining ownership of the property, they must assume the credit.