What are the eligibility criteria for a reverse mortgage?

Mortgage

In Spain many talks about the financial product called “Reverse Mortgage”, but how much is really known?

It is normal that there are questions about this product and today we clarify some frequent questions such as: What does it consist of? What requirements are needed to access this loan? Does it have tax benefits?

Reverse mortgage: It is a financial operation designed for the elderly, and consists of converting the value of your home into money, without losing ownership rights.

Who can request it? In Spain, it is only available to people over 65 with their own home or with a disability of 33%.

What is the taxation of the Reverse Mortgage? The amounts received for the Reverse Mortgage are not considered income, therefore, they are not taxed.

Requirements and procedures to access the reverse mortgage

  • Being over 65 years old
  • Resident in Spain
  • Own a home
  • No outstanding charges (the mortgage can be used to pay previous charges)
  • First home – usual home
  • Housing in urban centers (value > 150,000 Euros)
  • with heirs
  • Depending on each entity, there may be additional requirements

Let’s see with this image the procedure of hiring a reverse mortgage!

An additional source of income with the reverse mortgage

While a reverse mortgage may not be the best option for some homeowners, for others, it has benefits that you can take advantage of.

A person who owns a fully paid home may not have enough income to lead the lifestyle they want.

Therefore, a reverse mortgage can help you maintain financial independence while keeping your family’s future in mind.

In fact, these reverse mortgage loans convert the value of your property into money, without having to sell it.

And you can continue living in your house, your neighborhood…, maintaining your habits and friends.

How does the Óptima Mayores Reverse Mortgage work?

Óptima Mayores carries out a study to determine the amount you will receive with your Reverse Mortgage.

1. You will not have to make regular loan payments.

2. You will be able to transfer part of the value of your home in cash without having to sell it or move.

3. The money you receive is tax-free.

5. You are still the owner of the property.

6. You will have three options to choose from when deciding how you want to receive the loan:

– In a single payment

– ​​Monthly payments for life to provide you with regular income

– Or a combination of the initial amount, plus monthly payments for life

Now and after reading this post, try this quick and easy test from Óptima Mayores, where you will show how much you have learned from this financial solution.

1. What is a reverse mortgage?

A reverse mortgage is a special type of loan that is secured by the equity in your home. But in this case, the lender pays you instead of you paying him. In order to access this benefit, you must be at least 62 years old. You can use money anywhere you want, from paying medical bills to remodeling your home. Unlike a traditional home equity loan, a reverse mortgage doesn’t have to be repaid right away, and you probably won’t even have to in your lifetime. The HECM reverse mortgage program is administered by the Federal Housing Administration (FHA).

2. Can anyone apply for a reverse mortgage?

No, because you must be at least 62 years old to do so. You must also be the owner of your home, without limitation, or be able to pay the balance of the value of your home with the amount of the reverse mortgage. You must live in your home, and the home must meet certain criteria established by HUD. Most single-family homes meet these criteria to participate in the program, as do some condominiums, manufactured homes, and multi-unit structures that meet FHA requirements. 

3. How can I apply for a reverse mortgage?

Just like with a regular mortgage, you can apply for a reverse mortgage through a traditional mortgage lender. Before granting the mortgage, you must make a fee-based consultation with a mortgage advisor. Generally, that cost (approximately $125) is deducted from the loan amount. You can receive the reverse mortgage in a lump sum, through a line of credit, or in monthly payments. Loans are offered with fixed and variable interest rates. In fact, currently, more than 70% of these loans are granted with fixed rates, although, in this case, the loan must be requested for the maximum amount of the accumulated value of the house.

4. If I take out a reverse mortgage, will the bank become the owner of my home? 

No, the mortgagor continues to own the home. However, when you sell it, you or your heirs will have to return the money granted through the reverse mortgage, plus interest and other fees and commissions, to the mortgagee. You or your heirs will keep the remaining equity in the home.

5. If I have a reverse mortgage, do I still have to pay insurance and taxes on the home?

Yes. Unlike traditional mortgages, in which insurance and taxes are paid from an escrow account, in reverse mortgages you must continue to pay those expenses yourself. If for some reason your homeowners’ insurance has expired, you will need to reinstate the policy. You must also be up to date with the payment of the applicable common expenses.

6. When must a reverse mortgage be paid off? 

Generally, when the owner dies, they move or sell their home. However, in 2014, HUD announced that, under certain circumstances, the non-borrowing spouse may continue to reside in the home even if the borrowing spouse dies, but will no longer receive monthly payments. The widow or widower will still need to pay taxes or insurance on the home, as well as any necessary repairs if the home falls into disrepair. 

7. Are reverse mortgages expensive?

On these loans, the upfront fees (for example, mortgage insurance premiums, origination fees, and closing costs) are high, as are the regular fees (mortgage premiums, interest, and service fees). applicable during the term of the loan. Before contracting the loan, you will have to analyze how much you will have to pay in commissions to make sure you have enough money to cover your expenses.

By aamritri

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