What are reverse mortgages, and why it can be your best ally in retirement
For most people, the arrival of long-awaited retirement is usually accompanied by a contradiction: the reduction of monthly income and, therefore, of disposable income. While some have the possibility to save throughout their life through instruments such as pension funds, insurance, or other types of investments that complement income when the time comes, it may not be enough and above all, not everyone has that chance.
In fact, in countries like Spain, the bulk of household savings is invested in housing, the payment which usually accounts for the majority of available income in the labor stage.
This leads to very common situations in which people own houses worth a lot of money, but do not have the resources to maintain their lifestyle or to pay for care that is increasingly needed when getting older. What to do then? One of the options is to sell the house and move to a smaller one. But in many cases, older people do not want to sell their home as they want to continue living in it. For these people the solution can come from reverse mortgages.
What is it about? The reverse mortgage, as the name suggests, is a mortgage that works in the opposite way: a financial instrument by which a loan is granted to the client, based on the value of the home and the estimated life expectancy. How does it work? The contractor is agreeing on a fixed amount in the form of monthly payments. While the client is accumulating debt, they do not have to repay anything during their life. After their death, the heirs will be responsible for repaying the amount of the loan consumed as well as the interests. They have different ways to do so: sell the house, pay off the debt and keep the difference; or pay off the loan with their own resources or taking out another mortgage.
For a year and a half, the elderly who find themselves in the aforementioned situations can resort to the reverse mortgage that Santander and Mapfre commercialize through the society created for that purpose. Their reverse mortgage, which is marketed with all the guarantees for the client, has already helped a few hundred families to find a solution to their problems. The stories of some of the clients who have benefited from it explain the product better than any theory on how it works and for whom this product may be useful.
Gracia and Sixto, for the trips they never made
Gracia and Sixto are a couple who have been sharing their life since school time. From the town of La Mancha where they both grew up, they moved to Madrid to tempt fortune. They found work, had two children, and mortgaged to buy what is still their home today. In short, a life like many others, without missing the essentials, but without luxuries and with almost no possibility of saving money.
Gracia and Sixto retired, the children left home, and they decided that the time had finally come to do what they could never do: travel and get to know the world. With almost nothing saved in their account and pensions that barely allowed them to live, the reverse mortgage appeared to them as the solution. They read about it in a magazine, started investigating and finally went to a Santander bank office.
The numbers they made with the specialist convinced them, but they had some qualms about what their children would think. When they told them, the children gave them their blessing. “They have made so many sacrifices for us. We now welcome the reserve mortgage so they can enjoy and still be in good health. We will see when the time comes, as late as possible, what we will do with the inheritance,” the children explained to the bank specialist when they accompanied their parents. Santander and Mapfre only grant their reverse mortgage on the condition that the direct heirs are informed, even if the law does not oblige to do so.
A few months later, after going through the mandatory independent check-up that confirmed the suitability of the product for their situation, they signed the reverse mortgage. The first cruise was in the Caribbean, Gracia’s Dream, but the next trip will be in Scotland, where Sixto always wanted to go.
Mario and his three children
The story of Mario is very different. He is an engineer from Seville, 83, who found the love of his life after 50 and had three children together. Sadly, his wife passed away shortly after Mario retired. At first, the children continued to live with him in the family house, but little by little the chicks left the nest.
Mario's health is no longer what it was. He can no longer take care of the house but for no reason in the world would be willing to sell it. In the last few years, the situation has been getting worse. Over time, the little money saved after providing for his children was reduced as he needed help with taking care of the house, garden and after a while to make his meals as his health did not allow him to do so.
His children were increasingly worried. The oldest tried to convince him to go live with him and his wife, but Mario refused as he did not want to leave his house. None of them had any money to help him. Then, the youngest came up with the idea of reverse mortgage as she lives in a northern country where it is very common and well known. After investigating, the children discovered it was available in Spain with Santander Mapfre. They first talked to a Mapfre network specialist to understand the product’s features and then went on to tell their father.
Mario is still at home, knowing that he can enjoy his last years in his beloved chalet, having all the external support he needs, and without financial weight on his children. It does not rule out that someday, if his health worsens, he will have to go to a nursing home and, in that case, he will be able to rent his home while still enjoying the reverse mortgage.