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Reverse mortgage: improve the pension with the property
Reverse mortgage: improve the pension with the property

Video: Reverse mortgage: improve the pension with the property

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Video: Reverse Mortgage to Buy Your Retirement Dream Home 2023, January

The reverse mortgage is a special form of real estate pension. It can be used by home or property owners who want to improve their pension with a mortgage on their own house or apartment and at the same time stay in it. Other names for the reverse mortgage are reverse mortgage and reverse mortgage, often referred to as real estate retirement. The reverse mortgage has advantages, but also some disadvantages, which you will learn about here.

Many people in Germany face similar challenges when retirement comes. You have a paid property and therefore do not have to pay rent, but the modest pension is hardly enough for normal living. In addition, the pensioners' wallet is also not large enough for age-appropriate conversions or necessary repairs. Selling and moving away is out of the question for many, for example because they want to stay in their usual neighborhood. So what to do? A reverse mortgage may be the right solution. The owner mortgages his house, but stays in it and receives a monthly pension.

How does the principle of the reverse mortgage work?

The real estate pension with reverse mortgage works as follows: The owners loan their property free of debt. For this they receive a monthly installment or a one-off amount from the bank, for example the Sparkasse. The property serves as security for the bank, and a registered mortgage can be registered.

As a rule, it is retirees who use such a model to supplement their pension. You remain the owner of your property and can continue to live in it rent-free. The loan is even tax free. Interest and repayment are deferred (this is the difference to a normal mortgage), and the loan is only due after the borrower's death. The heirs then decide whether to pay the debt (including interest) or leave the property to the bank, which will pay off the loan in one fell swoop.

Disadvantages of reverse mortgage

The big disadvantage of the reverse mortgage is that the owner receives only a small payment in relation to the market value of the property. The reason for this is the security buffer that the bank takes into account for the interest and the undefined performance of the property. The owner's estimated life expectancy also plays a role. With a sprightly pensioner in his mid-60s, the payment amount for a property with a market value of 500, 000 euros, for example, could only be 150, 000 euros. This can mean that the amount does not cover the financial needs after retirement. To compare different offers of reverse mortgages, you need the help of an independent expert. Because when calculating the payout amount, each institution evaluates the life expectancy and creditworthiness of the owner, as well as the interest rate, quite differently.

Another disadvantage can be that the property must be maintained for the lender. Larger investments may also be necessary. And another disadvantage, especially for the closest relatives: the legacy is reduced or completely eliminated.

Benefits of the reverse mortgage

In view of the significant disadvantages, the reverse mortgage is only a suitable option for a few people to supplement their pension. This group of people should include retirees who have no heirs or do not want to bequeath anything to anyone. The reverse mortgage can also offer a way to stay in your own home if there are no other alternatives. As a pensioner, you should definitely go through and consider different options.

Rentnerin mit Taschenrechner
Rentnerin mit Taschenrechner

Is the reverse mortgage a way to top up your pension? Do the math and consider alternatives.

Photo: iStock / Bojan89

Are there alternatives to the reverse mortgage?

The reverse mortgage can be a solution for people who consider suitable forms of living in old age and want to improve their pension. However, there are many other options that can be a better alternative:

  • Selling property: The best solution is usually the property sale, because it offers the highest pension income. Due to the currently low interest rate level, you can get a good price for your property. Retirees can use the proceeds to rent or buy a smaller property with barrier-free facilities and location. You can use the rest of the money as needed. Many old people are attached to their property because they don't want to leave their familiar surroundings. That is why it is often better to sell at a somewhat younger age if you feel even more flexible. It should be borne in mind that a large house with many stairs can also be a burden for elderly people. If you are close to your neighborhood, you can also try to find a smaller property to buy in the area. A broker can help here.
  • The classic real estate pension : A classic real estate pension is understood when a house or apartment is sold upon retirement. At the same time, a lifelong right of residence is contractually agreed for the seller.
  • The real estate annuity: With this model, senior citizens sell their home ownership and receive a monthly pension payment on their account. As a rule, housing rights or usufruct are agreed for life and anchored in the land register. Again, there are disadvantages similar to those of the reverse mortgage. Therefore, from an economic point of view, it usually makes the most sense in such a situation to sell the property, buy a smaller one, or secure the income with the proceeds.
  • The family-internal solution: the future heirs may be able to support the property owner financially from the start of retirement. This way you can avoid mortgaging your inheritance.

The differences to the classic real estate pension and life annuity

In the case of the reverse mortgage, the property is mortgaged and is only sold after the owner's death or removal. The heirs have the opportunity to redeem the property. In the case of a normal real estate pension, however, the property becomes the property of the pension provider at the start of the pension and can therefore no longer be inherited. In both cases, the owner has a lifelong right to live.

With the life annuity, the owner sells an apartment or house and receives a lifetime monthly pension from the buyer. He can live in the property until his death. The new owner has to take care of the maintenance of the property. If the former owner lives a very long time, he may receive more money from the new owner than the property was actually worth - in this respect, the life annuity is comparable to a bet.

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