It is called Mortgage Lifetime Loan and is a new form of mortgage financing also dedicated to pensioners that allows you to obtain liquidity quickly without having the obligation to repay, at least as long as the contractor is alive, the sum loaned and still remaining owners of the object. Mortgage
To be honest it is a financial instrument present in our legal system since 2005 and widely used in Anglo-Saxon countries which has recently been modified to make it more accessible and, therefore, usable by consumers.
It is a medium-long term loan not finalized, that is, it allows you to use the money obtained without restrictions, which can be taken out by the over 60 owners of a real estate property that is “monetized” and transformed into liquid money (see also Affordable loans for young people and retirees ).
Who is it for?
As we have already said, this financial instrument is dedicated to all those who are at least 60 years of age and who own a property that is not already burdened with mortgages. Therefore, all legal entities, such as companies, associations and companies, are excluded. The lenders are, however, the member banks.
The amount that can be financed is generally between 15% and 50% of the value of the property to be mortgaged, estimated by appraisal, and the percentage increases with the age of the applicant because, obviously, the older the beneficiary is the shorter the estimated time that the lending bank will have to wait to see the credit granted return.
How does it work
This is the most innovative part of this form of financing, as the contractor can decide not to return anything while he is alive of what has been paid to him and leave the responsibility of deciding how to repay the due to the heirs of the property and the debt. . There will be two choice options available to them:
- pay the amount accumulated (capital + interest) accumulated over the years from your own pocket, even if necessary by taking out a loan for this purpose, no later than 12 months from the death of the contractor;
- let the Credit Institute sell the property to recover the credit claimed, repaying any excess amounts.
In the event that the policyholder has been married or has lived with his partner for more than 5 years, the mortgage annuity contract must be made out to both, and both must be aged 60 and over. In this case, the repayment of the debt will fall on the heirs after the death of the longest-lived spouse / partner.
It is important to underline that this operation foresees quite high costs, both because the spread is high, approximately around 5%, and because the capitalization of the interest is compounded and includes the anatocism: that is, the interests already calculated on the capital financed annually add up to capital thus generating an exponential increase in the amount to be repaid.
Let’s take an example to better understand this particular count: let’s imagine that we have obtained a credit of $ 40,000 on which a fixed rate of 4% is applied. The interest count will follow this trend:
- 1st year – capital: $ 40,000 – interest: $ 1,600
- 2nd year – capital: $ 41,600 – interest: $ 1,664
- 3rd year – capital: $ 43,264 – $ 1,730.56 interest
With this trend, the longer the policyholder will be, the higher the final debt that will fall on the heirs. If the mortgages loan taken as an example were taken out by a 70-year-old man and the latter died at 85, the initial debt of $ 40,000 would come to the shoulders of the heirs soared to around $ 72,000.
To avoid an excessive accumulation of expenses and protect the heirs as much as possible, the contractor can agree with the lending institution at the time of signing the contract the early repayment of the interest, year by year, while it is still alive, in order to take advantage of the advantages of simple capitalization. In this way the heirs, at his death, should worry about returning only the initial capital.
It should be noted that in this form of financing the amount of the debt will never exceed the value of the property.
Which means that, in the event that upon the death of the contractor or the longest-lived spouse the total debt exceeds the value of the house, the bank will lose the surplus and will not be able in any way to rely on the heirs.
When signing the contract, it is also mandatory to sign an insurance policy on the property. It is the policyholder’s right to choose the policy from the insurance company which, for the same product, offers the most advantageous conditions.
Again to protect the policyholder, depending on whether the loan uses a fixed rate or a variable rate, the bank is required to present the customer with one or two statements in which the capital and interest performance over the of a duration of 15 years both with the fixed rate and in the hypothesis, for the variable, of a future increase in rates.
First of all, it is advisable that the interested party obtain more estimates from various banking institutions that offer this type of financing. After careful analysis, we will contact the bank that is able to offer the best economic conditions by submitting an application and attaching the following documents:
- identity card;
- fiscal Code;
- family status;
- preliminary notarial report or the deed of origin.
If the bank deems the documentation sufficient, it is possible to assess the value of the property. This analysis will be carried out by a bank expert and the cost of the operation falls within the costs borne by the applicant.
After the appraisal, the contract is stipulated, which must take the form of a public deed signed between the bank and the notary. What has been agreed will be disbursed on the beneficiary’s current account in a single solution or in a number of tranches previously agreed with the bank during the negotiation phase.
Advantages and disadvantages
The lifetime mortgage loan has on its side the advantage that the beneficiary can access, freely disposing of, an amount of money, even important (up to $ 350,000 if the property owned is of considerable value), without any obligation to repay as long as it is in life and remaining in all respects the owner of the apartment.
Indeed, the disadvantages mainly concern the heirs, who may have to repay within 12 months a much higher figure than the capital previously disbursed, on pain of losing their home.
It is however a valid alternative to the sale of the bare ownership of the apartment (irreversible act), because it leaves to the heirs at least the possibility of final choice on the renunciation of the property or not.
However, this is a form of financing that is still not widespread. There are very few lenders that offer the mortgage annuity among their products, also because with the crisis of the last few years the real estate market has suffered a significant setback and the value of the properties has fallen dramatically, with the risk for banks not to see the entire mast return even in the case of sale of the mortgaged property.