The «reverse mortgage» in Spain is based on a simple idea aimed at helping those over 65 years old who own their own house or flat but find it difficult to make ends meet at the end of the month. With a ‘reverse mortgage’ they can receive payments from the bank monthly over a limited length of time or a one off payment and continue to live in their own homes for the rest of their days.

Although this financial product has been available for five years, it has only been over the last two years that it has really taken off. Furthermore, the new law governing mortgages which is due to come into effect in the autumn could act as an incentive for more banks to offer ‘reverse mortgages’.

Up to now only around a dozen of the big building societies and banks offered reverse mortgages. However, according to a survey published in El Pais yesterday, one out of four people between the ages of 55 and 80 are very interested in this product. In fact almost 90% of those questioned were home owners and almost the same number of people also expressed the desire to live in their own homes until they died.

Despite there being no official statistics on a reverse mortgages it is believed that around 10,000 have already been taken out.

Nevertheless Spain’s biggest high street banks still regard reverse mortgages with a certain degree of suspicion and argue that legislation is still too vague regarding these kind of financial products.

In Spain around 30% of the population is over 65 years old – almost 14 million inhabitants – a growing figure which has persuaded smaller banks such as Ibercaja or Caixa Terrassa to offer reverse mortgages. El Pais reports the case of Roger Mateu and Rosa Verdaguer, both of whom are 82 years and who a year ago realised that their attic flat of 60 m2 in the centre of Barcelona could help them raise their standard of living.

They took out a reverse mortgage for 300,000 euros and in return will receive 1,200 euros per month over the next 12 years. If the couple live another 12 years they will receive a total of 172,000 euros, which is 57% of the total mortgage. They told the newspaper that neither of them thought that they would be around to see the 12 years period finish, but if they were, according to the conditions of their reverse mortgage, they would still have the right to live in their own homes to the end of their days. The extra 1,200 euros per month is a welcome addition to their monthly pension of just 700 euros and, according to Mateu, now with their extra income from the bank if either of them get ill they will be able to stay at home and pay somebody to look after them.

The reverse mortgage offers its clients the commitment that following their death their inheritors have the possibility of repaying the bank in order to get the property back (the rest of the mortgage plus money received and interest).

If this does not happen the bank has to pay the inheritors the balance of the unpaid mortgage agreed with its clients.

Reverse mortgages have evolved from another product which consists of property owners signing over their property to the bank which then guarantees them an income for the rest of their lives and allows them to live in the property for the rest of their lives. However, following their deaths their inheritors do not have the possibility of repaying the bank and getting the property back. All transactions are done before a Notary and the property is recorded on the property register just like any other property sale. All costs are paid by the buyer (the bank) including real estate tax.

Related: Mortgages in Spain