Old age pensioners in Spain receive monthly payments from banks against the value of their homes
Some banks in Spain run a scheme under which old age pensioners who are home owners can receive loans from banks in the form of monthly payments of around 500 euros, either during a limited number years or for life. This way pensioners can top up their monthly pension. The banks can then be repaid either by the pensioner, which would leave the home free of debts, or the inheritors of the home.
This scheme which is only run by a few banks is called a ‘hipoteca inversa’ in Spanish which literally translated means an ‘a mortgage the other way round’. The loan is given with a fixed interest of around 6%.
Miguel Artazos, Manager of the Development of Financial Products for Ibercaja, explained in an interview in El Pais that this product converts a property into a financial support for those pensioners who have a limited income and find it hard to get by on their normal monthly pension.
He also said that it was a way that pensioners could receive extra income without having to give up their properties.
He said that once the fixed term was up their were two options. The first is that if the property owner dies the inheritors decide to keep the property and pay off the loan in full. The second option is to sell the property, pay off the loan and keep the remaining money.
Following a fixed term the payments can then be extended for life. However this would incur extra costs in the form of an added insurance plan which could be as much as 18,000 euros extra.
Whether the payments are made for a fixed term or for life there are a number of other costs to be taken into account when considering this option like notary costs, a survey and valuation of the home, opening commission etc.
At present only a few banks offer this scheme and their terms and conditions vary widely.
The Spanish Minister for the Economy, Pedro Solbes, is looking into regulating ‘inverse mortgages’ by law. The main objective would be to offer greater security to the person taking out such a loan with the bank and offer more transparency.
The government is also looking at how to reduce the cost of ‘inverse mortgages’ for consumers. For example no penalty charges for the cancellation of such a loan. In addition, the government is also considering whether to make the costs of opening this type of loan tax deductible.