A provision for life

Article in "The Country"

Upon retirement is usually accompanied by a loss of purchasing power, which in most cases means that our seniors have difficulty to deal with a growing care needs, and that in many cases can not be properly served, nor by their families, nor by the Social Services. In addition, we must not forget that today life expectancy has lengthened considerably and that from certain age becomes quite difficult to obtain financing.

However, thanks to the reverse mortgage, a mortgage aimed at seniors, own their own homes, our seniors can get some regular income to finance these expenditures. Besides being able to continue living in their homes if they wish. Because with the reverse mortgage is not lost or ownership or use of the dwelling. Also, if you prefer, they can improve their standard of living to obtain an income that will allow them to pay a residence for the elderly, without the need to give up ownership of your home.

With the reverse mortgage, the operation works exactly the opposite is the case of a mortgage loan, which must begin to repay the monthly quota of principal and interest immediately. Through the reverse mortgage, the borrower receives monthly income for as long as the rest of life, resulting from a claim which has been granted based on the value of their homes. So that the sum of the amounts provided more regularly capitalized interest and other costs expected to contract the operation amounted to the value of the dwelling to the due date of the transaction.

Along with credit, was hired three insurance that guarantees:

1. That in the event that the borrower will survive to the moment when he has exhausted the availability of credit, it will continue to receive until his death the same monthly income earned from the provision (insurance annuity).

2. To ensure the lender for a period of time, the payment of interest on the entire balance provided from the time it runs out of credit available to date of final maturity of the loan (insurance income temporary).

3. Observe, at least, the legal requirement that the property is insured against fire or any other contingency related to housing, discharging this obligation of the borrower (home insurance).

All expenses, including insurance premiums, expenses arising from the valuation of the property, the payment of taxes, provision of security, registration, etc., are charged against the credit account. This means that a customer without any savings, but with a flat owned, is beginning to receive monthly income in the same month of formalization, without having to have saved for the payment of such expenses. Moreover, these monthly revenues are not income, but simple provisions for credit, so do not taxed in the declaration of personal income tax.

Once reached the maturity of the loan is due to the cancellation of it. This can be done through a number of solutions that are adapted from the best circumstances surrounding each case. Sometimes, if the borrower has died, it may proceed with the sale of the house from the heirs, and deduct the amount of credit prior to incorporate the surplus to the estate of inheritance. In other cases, if the borrower survives, it may refinance through a new valuation and extended warranty.

Miguel Artaza is head of Product Development Financing Ibercaja.

(Unrated)

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Written by Carlos Lopez on February 27, 2006 with 2 comments.