Your own four walls are one of the safest and best investment forms, saving you the lease for life. But thanks to reverse mortgage offers – to German “reverse mortgages” or real estate pension – the property can be used even more effectively in old age.
What is a reverse mortgage?
Anyone who lives in their own apartment or in their own house, enjoys a great advantage, since the rent is eliminated. But actually, the house does not work for you, because in the event of death, you leave a valuable object without having properly used its value.
With this consideration, the question arises, how to make the money liquid again, which is bound in brick and mortar.
Reverse mortgage or reverse mortgages are models that make the property money again without having to sell or leave your four walls,
In essence, you get from a financial service provider a mortgage on the house, which can be used as an additional pension. This mortgage is not paid in one amount, but usually monthly, so that the liabilities to the credit institution gradually build up. Variations also allow larger immediate payments to finance, for example, modernization or renovation work.
If the borrower dies, the bank can meet its claims arising from the sale of the property. Of course, the heirs get the chance to acquire the object by replacing or taking over the loan of the deceased. However, they can not be forced to do so. Seniors therefore need not be afraid to financially burden their offspring.
How much money do you get at a reverse mortgage?
First of all, it is interesting to see how much money the borrower can get for a reverse mortgage. The amount paid out depends on the value of the property and the age or life expectancy of the borrower.
The starting point is the current value of the property. In the next step, the development of the local real estate market over the desired term is estimated. Since these are usually longer maturities, the first caveats are taken here to counteract risks in assessing market developments.
The second basic factor is the duration of the reverse mortgage. Since the payments are to flow to the borrower for life, it has to be determined how long that is on average. Therefore, the older a borrower is, the higher the loan amount can be.
How long a reverse mortgage should run defines the amount of the payout. Basically, the official mortality tables from the insurance industry are used to estimate the remaining life expectancy.
These years and months are then allocated to the calculated value of the property and calculate the provisional amount of the payment. It sounds unlovely, but it is quite natural: the older a person gets, the lower his life expectancy will be.
Agreement with any heirs makes sense
Before you decide on the real estate pension or reverse mortgage, you should also discuss this with the heirs. The fact is, the property is silvered in old age, which also reduces the genetic makeup.
However, the heirs can not be required to replace the loan. You can do that if you want. If there is no interest in taking over and paying off the deceased’s loan, the credit institution must satisfy its claims arising from the sale of the property.
With regard to hereditary material, the topic inheritance tax should also be considered. A perhaps interesting way around this tax is the sale of the property, for example to the heirs. The keyword here is life annuity and will be discussed in detail on our sister site umkehrhypotheken.com.
Dissemination and awareness of the reverse mortgage
The business model is not very common in Germany. While in the United Kingdom and the United States this possibility is used regularly to supplement the pension, in Germany both the seniors and many banks are still struggling with the concept of a reverse mortgage.
Therefore, this loan is not cheap. From a borrower’s point of view, the fact that the bank has above all to hedge the risk of longevity and a real estate market that is difficult to calculate must make matters worse. This leads to discounts and increases the interest rate of the reverse mortgage.
Conclusion on the reverse mortgage:
A reverse mortgage, real estate or reverse mortgage is a proven way for the senior to supplement the pension. Month after month, funds from the property flow back to the one who also generated the property. After the death of the borrower, his heirs can take over the reverse mortgage, but they do not have to.
An analysis of your situation is hardly possible without an expert because of the various security features. Take advantage of our free service and inform yourself without obligation.