More and more often on TV, we can see advertisements of companies dealing in offering the so-called reverse mortgage. They direct their services primarily to seniors. What exactly does a reverse mortgage consist of and when can we use it?
A reverse mortgage, in English reverse mortgage or Equity Release Schemes, ERS, is a special financial service that allows you to change residential real estate into funds used for current needs – similar to private retirement benefits. Therefore, it allows the release of property in the form of real estate while retaining the right to use it until death.
Therefore, a person who owns property such as a house or flat can use a reverse mortgage to receive regular monthly payments in exchange for transferring ownership to the company that maintains these payments.
We distinguish two types of reverse mortgage:
• credit model – the so-called reverse mortgage loan is a loan or loan secured by a mortgage and repaid with funds from the sale of real estate
• sales model – the so-called lifetime cash benefit, means the transfer of the right to ownership of the property and allows the owner to lifetime use the property and obtain funds as an additional source of income, the term annuity is also used
In Poland, we have been using the reverse mortgage since 2008, when it was introduced to the market by Fundusz Hipoteczny DOM SA
How much can a lifetime mortgage return be?
Above all, it is worth pointing out that we can not always use a reverse mortgage. It is offered mainly to owners of flats, houses, and cooperative housing estates. Sometimes it is possible to take a lifetime annuity by tenants of co-operative apartments designated for purchase.
The amount of benefits is calculated individually. It depends on a number of factors, including the age of the property owner, gender and property values, which in turn is related to the location and standard of the flat or property. Therefore, property owners can receive from several hundred zlotys up to several thousand zlotys a month.
Advantages and disadvantages of a reverse mortgage
We should not treat a reverse mortgage as an attempt to cheat – it is in many cases a very helpful service thanks to which seniors can improve their financial situation.
First of all, the problems may affect the family – when the relatives do not help the senior, then using the reverse mortgage may be a hit. Of course, then the property passes to the company and can not be inherited, which may be the cause of family disputes.
Therefore, when a senior would like to transfer the property in inheritance to his children or grandchildren, using a reverse mortgage will not be a good choice. However, you can opt out of this type of service – detailed information can be found in contracts and service regulations.