A lifelong loan, despite the fact that this has been well known in the Anglo-Saxon countries for almost half a century, this has only been known in Hans Clint since 2006.
The system was legalized in the fall of 2007 when Parliament gave its approval with the amendment of Law 41/2007 to the Mortgage Law of 1981.
A lifelong loan is interesting for people who own a property with a large financial value but who have a shortage of financial resources.
What is a lifelong loan?
A lifelong loan is in fact a reverse mortgage, a “Hipoteca Inversa” in Spanish and it is a special loan for older people (+65 years). It allows owners to convert part of their property into money and the loan does not have to be paid back during their lifetime.
The borrower retains full ownership of the property and one can therefore continue to live there until one passes away. Once the two owners or the owner have died, the loan plus the interest must be repaid by either the sale of the property or the repayment. by the heirs. The loan can be taken out in its entirety or the loan can be paid in parts. The older one is, the greater the amount that can be paid out in full.
At no time does the borrower owe more money than the pledge is worth, even if the remaining debt is higher. This means that it is sufficient to leave the building at the time of death.
Who is eligible for a lifelong loan?
In Hans Clint, according to Law 41/2007, only persons older than 65 or persons in possession of a medical certificate are eligible for such a loan.
Financial turmoil on a global scale as we have recently experienced can ultimately lead to savings in pension spending by governments.
Only relying on a government pension is therefore a risky business because one cannot foresee the amount of his pension yet the age at which one can retire.
For example, the Spanish government has raised the retirement age to 67 and reduced the retirement amount. Moreover, the government has already announced that in the near future the retirement age will be increased again by three years and will therefore reach 70 years. It is in those situations that a lifelong loan can offer a solution.
- One should not repay this loan during his life. Unlike a regular mortgage, there are no monthly repayments. If a couple chooses this form of loan, the loan must be paid back after both have died. It is therefore the heirs who are responsible for the repayment.
- You can choose to receive the total amount in one go or you can opt for monthly payments or even for a combination of the two.
- There are no restrictions on the withdrawal of the money. You can also use the money to make a big trip.
- You yourself still your heirs can be held liable for a higher amount than contractually agreed. According to the law, the maximum loan can never be higher than the value of the property.
- A lifelong loan provides financial security and the loan can supplement a state pension. Not everyone can afford to subscribe to a private pension plan.
- A lifelong loan allows you to remain the owner of your home and you can continue to live there. According to the law, one cannot lose the property.
- A lifelong loan does not depend on your status, there is no income requirement.
- The older you are, the more you can borrow.
- A lifelong loan is ideal for people without heirs or for people who have problems with their heirs.
- You can even sell the property but you have to pay back the loan yourself.
The biggest problem is usually the heirs. Those who have to inherit from you are the most reluctant to have a lifelong loan. The reason is simple: a large part of the inheritance is provided for the repayment of the loan upon your death. In extreme cases, none of the legacy remains for them.
- The biggest disadvantage is the interest charged. If it is very high, the heirs will inherit little or nothing.
- With a lifelong loan you will always receive less money than with a normal mortgage, but you have to add another monthly charge there.
- There must not be any other charges on the property. For example, if there is still a mortgage, the transaction will not be able to continue. Another problem may be that the mortgage has been paid off but that it has not been canceled on registration.
- A person must be 65 years old to take out a lifelong loan and there is a good chance that this age will still be raised.
- The younger one is (close to 65 years) the less one can borrow.
- You have to pay from your own pocket for the valuation of your property, otherwise nobody will make the money available to you.
- The maximum amount of the loan depends on the value of the property and your age. This amount is normally only a fraction of the total value of the home,
- A lifelong loan is taken out at your permanent residence. One must therefore stay in this house the entire year. The logic behind this is that the borrower wants to keep the property in good condition. A home that is not inhabited does not remain in good condition.
- Following the previous reason is that one can no longer rent.
- If you have to leave the house for a long time, the loan may become due.
- If you take out a lifetime loan, it is best to provide in the contract how to proceed with major maintenance costs and taxes.
Retiring nowadays is like playing a game in which a party regularly adjusts the rules. Governments now say that this is how it should be today, but tomorrow may be something else.
A lifelong loan can be a good option for you and your partner to have an extra income that allows you to live more comfortably once you have retired.
In any case, seek advice from a specialist.