The reverse mortgage is a financial product consisting of exchanging real estate for money without losing ownership.
This type of product is born as a way to obtain liquidity through real estate assets of generally elderly people, assuming a complement to their pension or a way to obtain an income equivalent to the market value of the real estate property minus a discount applied by the bank. The disposable income can be disposed monthly, quarterly, annually or in its entirety, depending on the client’s negotiations with the bank.
In general, the reverse mortgage is born as a way to complement the income or liquidity of people, usually of a certain age, with whom you can have a more comfortable life or old age. For the use of the reverse mortgage the habitual residence of the residents or other goods that do not use or have them rented can be used. In this way, you can earn income from those goods that you do not use or would not like to sell.
The way of operating is as follows: the banks, prior appraisal of the asset and the establishment of a range of salable housing, gives a market value to the real estate. Subsequently, it offers this information to the client, who may or may not accept it, and if so, to agree on the dispositions of money (the temporality). In reality, what the bank grants is a reverse mortgage loan , that is, the client obtains income that is deducted from the value of the home.
How good is recovered
Once the client obtains a monthly income, the client himself or the heirs, in case he dies without completing the value of the property, they will have to pay the value taken from the house to obtain the total property of the same. Otherwise, the bank will execute the property, that is, it will put it on sale, and it will keep the value that it would have paid to the client, while the part that was not paid to the client will go to the heirs.
Naturally, the bank applies a discount on the value of the flat or on the rent to be paid that implies an underlying benefit of the operation, which in case of recovery of the heirs or auction, may have a higher price than the appraisal.