Ángel Cominges Rodríguez-Carreño, CEO of Óptima Mayores, analyzes the key points of the reverse mortgage as a solution to the problem of pensions and a liquidity channel for the elderly. In addition, it is also an interesting investment product in the long term.
The reverse mortgage is an alternative financial product for the elderly, what does it consist of?
The reverse mortgage is a loan or credit with a home equity guarantee (the average amount that is borrowed is 30% of the appraised value) through which the borrower can obtain an amount in a single payment or in the form of a monthly payment without the bank being remains with the property, but the house passes to the heirs who are given a period of one year to decide how they want to return the loan to their parents, although the most common is to sell the property and return the loan to the bank the heirs keeping the difference.
It is a financial solution for all those people over 65 years of age who own a home valued at more than 150,000 euros and who live in the main provincial capitals or in towns with more than 45,000 inhabitants.
The Bank of Spain is in favor of using financial instruments that make it possible to convert this savings into liquidity -without losing home ownership- provided they are marketed with professional and specialized advice and with all the guarantees for the user. The reverse mortgage is a financial and social product duly regulated in Spain that can already be contracted with the aforementioned premises.
Which has benefits?
Housing has an enormous advantage in vital financial planning because 90% of those over 65 in Spain own a home, so they could benefit from obtaining the liquidity provided by these solutions immediately and maintaining the possibility to continue enjoying the property and of course the use of the house.
On the other hand, the reverse mortgage, in addition to having important tax advantages, is the only operation in the market that allows: obtaining liquidity without having to face repayment installments, that the elderly can continue living in their home and that they do not lose their ownership of your home.
Is it a solution to the problem of pensions in Spain or do you need to bet on other vehicles?
From our point of view, the recommendations of the Toledo Pact Commission are positive, but they have fallen short, since they do not face the real problem of the Spanish pension system, where pensioners access the system receiving more benefits than the contribution made during their working life, mainly due to the greater longevity of the new generations.
Products such as the reverse mortgage, with legal security and vital financial planning, are in this economic environment a viable solution in Spain, where pensions continue to be an unsolved problem in the medium term.
In an economic context like the current one, the reverse mortgage is presented as a financial and social product that can provide solutions to the elderly community by complementing the public pension and guaranteeing an income without loss of property and, indirectly, helping to alleviate problems in the economy real. More than half of retirees cannot make ends meet and have their savings immobilized in their homes, even their real estate assets are much higher than savings in pension funds.
In short, housing as one more asset for retirement planning in an environment in which large government support is not contemplated to take care of our elderly, can and should be one of the most efficient and profitable options for the Spanish population. Current retirees accumulate a savings in housing of more than 634,000 million that we should enable with vehicles or products that allow people who freely decide to enjoy this savings in their retirement, and that can already be done today in Spain with all the guarantees for the user with products such as the reverse mortgage.
How can investors have exposure to entities dedicated to reverse mortgage?
The reverse mortgage as an asset is very interesting for long-term investors, who can obtain returns much higher than those obtained with other assets of similar duration and with a mortgage guarantee.