Reversed Mortgage – How it Works and Why it is Worth Knowing about it?
A reverse mortgage is an unusual financial service that can be an interesting option for many retirees. Thanks to it, you can improve your financial situation in the case of unsatisfactory retirement. Unfortunately, it is still not very popular with banks. Get to know the specifics of a reverse mortgage, its definition and check if it is worth using this service.
The situation in the sphere of Polish pensions has been the subject of lively discussions for years. The most frequent allegations in the case are, of course, the amount of benefits, the method of receiving benefits and this efficiency. Many future or already existing pensioners sometimes wonder how good it will be to improve the financial situation in the case of a low pension. Although loans for pensioners enjoy high grants, many people are not interested in living on a loan until the last days. People try to do their best, because the forecasts for the future do not fill us with optimism. Among the examples being an example of creativity and cunning, there are also solutions thought out as a help for pensioners who receive modest benefits.
This is called reverse mortgage, which is becoming a more and more popular concept. Her terms are extremely obliging and require a well-thought-out decision from us, but it may herald a better finances during retirement. The process of granting us a reverse mortgage is not complicated, but the number of banks that use it is small. What is the reverse mortgage, what is the risk associated with it, what conditions must be met, what must we sacrifice and how can we get it? Let’s get to know the answers to these questions.
Reversed mortgage – what is it and how fast can it be obtained?
A reverse mortgage can be defined as a form of a lifetime loan that is secured against real estate. In other words, a reverse mortgage involves transferring our property to the bank. On the part of the institution, an individual monetary amount is transferred to us. It can be in installment or one-off.
The process of granting a reverse mortgage – in theory – is quite simple. It presents itself in the following stages:
- The bank determines the value of our property.
- The terms of service with a potential client are agreed upon.
- If both parties agree to negotiate arrangements, then a contract is signed.
- After this stage, the bank becomes the creditor of the mortgage established in the land and mortgage register.
- The customer receives a predetermined and announced amount in advance, as mentioned above – paid once or in installments (monthly).
It is worth remembering that the beneficiary remains the owner of his property until his death. In addition, it has the privilege of using the premises in an unlimited dimension, also until its death.
What about the death of the recipient?
After the death of the beneficiary, his rightful heirs (usually relatives or relatives) have the full right to repay the mortgage and take over the ownership right. If the heir is not interested in repaying the mortgage – then the bank is obliged to pay him the amount of funds left to be paid to the deceased. The heir may then pay off the specified amount or agree to transfer the property to the bank in return for the remainder of the benefit. A reverse mortgage is therefore a specific alternative to the mortgage contract.
A reverse mortgage is not a lifetime cash benefit
It is worth remembering that the concept of reverse mortgage and lifetime cash benefits is not the same. Lifetime cash benefits may be provided by an entity that conducts insurance activities. Securing the interests of the recipient occurs only in the civil law dimension. A mortgage fund may stop paying out a benefit if it performs, for example, bankruptcy proceedings. What’s more, mortgage funds are not subject to restrictive legal regulations, which usually provide a guarantee of solvency. The situation is different for banks.
The biggest difference between the aforementioned concepts is, first of all, the wording of the provisions of the contract in the matter of a lifetime cash benefit. The fund undertakes to make a lifetime payment of a financial allowance, but the recipient:
- It transfers the ownership right to the property, that is when it signs the contract it loses all rights to it.
- However, a person may use the premises for life, but this is no longer his property.
- Potential heirs can not purchase a mortgage or have any additional claims to the property.
Lifetime cash benefits are therefore more risky than a reverse mortgage, and their profitability – according to experts – is questionable. It’s not without reason that this is a rather unpopular service.
- In the event of a lifetime benefit, upon the death of the beneficiary, all payments and rights to the given premises cease.
- The heir has no further rights to the benefit.
Rules for providing reverse mortgage loans
The most important rules that govern the issue of reverse mortgage loans are included in the provisions of a specific act. Let’s exchange them.
- Everyone can use the loan.
- Age does not matter.
- The condition is ownership of real estate.
- The beneficiary must be the owner or co-owner of the premises.
- There is no verification at BIK.
- A reverse mortgage may only be granted by banks and credit institutions subject to the supervision of the Polish Financial Supervision Authority.
- Before signing the contract, the bank must provide all necessary information in writing.
- The bank may transfer monthly or one-off funds in full amount.
How much money can we get for an inverted mortgage?
The answer to this question is not simple. Banks, unfortunately, are reluctant to approach the idea of a reverse mortgage and for this reason there are currently no offers on this issue. The reverse is true in the Western countries, where reverse mortgage loans are developing rapidly and are becoming more and more popular. The value of funds that are paid out by the bank most often oscillate around 50% of the property value.
This means that a 60-year-old Pole with a flat, for example, worth PLN 300,000, can expect 150,000. PLN one-time installment or PLN 500-600 in the form of monthly installments. The reverse mortgage for women, unfortunately, will be smaller, due to the statistical longer age of women. The 60-year-old will receive monthly no more than PLN 500 loan installments per month.
It is worth bearing in mind that contracts concluded with a bank are temporary. If, therefore, the beneficiary continues to live after the date specified in the contract , the benefits will no longer be paid.
Is reverse mortgage profitable?
A reverse mortgage is a good way to liquidate household finances for seniors and retired people. As a result, this service is mostly used by people who are childless or not financially connected with their adult, independent children. Their priority should be, above all, to increase income to the home budget in the face of a modest pension.
Looking at the performance from the perspective described, the mortgage seems profitable. It can protect you against making a much more obliging loan or payday loan. Although, as mentioned above, reverse mortgage is becoming more and more popular in Western European countries, there is no shortage of voices skeptical about its phenomenon. It is emphasized that using a reverse mortgage is not as beneficial as it may seem.
The sale of real estate is much more profitable, and the rental of a flat and the use of capital thus obtained is definitely more profitable.
Nevertheless, it seems that a reverse mortgage will become an increasingly popular solution in Poland. However, before the potential beneficiary decides to use this service – he should consider all pros and cons. Because in the case of a reverse mortgage it will receive about 50% of the value of the property spread over monthly installments, and in the case of sale of a mortgage, it can get 90-100%.
To find the loan that best suits your needs, we advise you to check our current loan ranking . The ranking is updated regularly to provide up-to-the-minute information on online loan offers.