equity release, AKA a Reverse Mortgage in Spain

 

What is Equity Release?


If you are in your mid 60's or older you might have paid a substantial amount off your mortgage, or be close to doing so. The value of your home may have risen considerably since you bought it, but you might still be short of money to spend, invest or even pay your standard mortgage off.


Equity Release is a way of raising money from the value of your home.


Equity release will reduce the value of your estate.

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THE reverse Mortgage in Spain - the details

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What is it?


The Reverse Mortgage is a financial product that allows you the client to have part of the value of your home, using it as collateral.


With the Reverse Mortgage, you can receive the amounts in the form of a single amount at the beginning, in the form of monthly payments, or a combination, that is, an amount at the beginning plus a monthly payment.


You will maintain ownership and use of the home.


The Reverse Mortgage has no repayment installments, and is only repaid after death or if decide to pay it off earlier.

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So how does it work?


GPS conducts a study to determine the amount you will receive with your Reverse Mortgage.


The Reverse Mortgage allows you to receive the loan in the form of annuities, in a single payment or in a combination of initial amount, plus annuities.


If you wish, you can pay the debt in advance or it is amortized after death.


The obligation to return the loan (capital plus interest) is generated upon death. The heirs have a period of 12 months to do so.

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What does it cost?

 

The Reverse Mortgage is subsidized by Law 41/2007, which establishes the exemption of the IAJD (it does not have to be paid), and also the notarial and registration fees are much lower than those of a normal mortgage loan.

  • The expenses of opening your Reverse Mortgage (notary, agency and registration) are advanced by the entity on account of the mortgage loan.
  • The only expense you have to pay in advance is the cost of the appraisal, once you are clear that you want to do the operation.
  • In our study of your Reverse Mortgage all the expenses of the operation are detailed, as well as the evolution of the debt.

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How is the loan repaid?

 

  • You have no obligation to return the borrowed money.
  • Your heirs will be responsible for liquidating the debt with the entity at the time of death. The Reverse Mortgage is designed so that, at that time, the debt is less than the value of your property.
  • Your heirs have a term normally of one year, and during that time they have several options:
    • They can sell the house, pay the debt, and keep the difference.
    • They can subscribe a new mortgage to pay off the debt.
    • They can settle the debt with their own money and keep the house.

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What will i be charged for the loan?

 

The financial entity that grants the Reverse Mortgage, charges an interest rate for the money borrowed, this means that at the time of cancellation, the amount owed will be equal to the amounts received and initial expenses paid by the financial entity, plus interest generated until cancellation.

 

The Reverse Mortgage can be canceled at any time, returning to the financial institution the debt accumulated until the day of cancellation

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Am I still the owner of my home?

 With a Reverse Mortgage, at no time will you lose ownership of your home. You simply use your home as collateral against the entity, but the home remains yours.

 

You can rent your home, because it is still yours. Normally, financial institutions request that they be informed of the rental agreement, to verify that it is not a lifetime rental or minimum income.


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What are the Requirements?

Be over 65 years old

  1. Resident in Spain
  2. Have home ownership
  3. No pending charges (the mortgage can be used to cancel previous charges)
  4. First dwelling - habitual dwelling
  5. Housing in urban centers (value> 150,000 Euros)
  6. With heirs in Spain
  7. Depending on each entity, there may be additional requirements


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Taxation.

The amounts received through the Reverse Mortgage are not considered an income, therefore, they are not taxed.

However, if the operation involves monthly payments, the monthly payments received are subject to taxation.


Immediate annuities are taxed on income from movable capital, with 8% of them subject to taxation (for those over 70 years old). That is, for an insured income of 1,000 euros, the customer would be retained 19% (type) of 8% (yield), that is, 19% x8% x1,000 = € 15.2. The client would receive 984.8 Euros net.

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What is the procedure to go ahead?

  1.  GPS will give you personalized advice, depending on your needs, circumstances and heritage, which includes a free study with the best alternatives
  2. Once you have decided, you must provide a series of documentation that GPS analyzes to determine the previous viability of the operation
  3. Once the initial viability has been verified, the request is made to the entity and you will have to pay the provision of funds for the appraisal
  4. An appraisal is carried out by an independent appraiser
  5. Once the transaction is assessed and analyzed by the entity, it issues a binding offer
  6. The operation is signed before a notary
  7. The entity will make a transfer to your bank account