Reverse mortgage


The reverse mortgage is a financial product consisting of exchanging real estate for money without losing ownership of them.

This type of product was born as a way to obtain liquidity through the real estate assets of generally older people, assuming a supplement to their pension or a way of obtaining an income equivalent to the market value of the real estate asset less a discount applied by the bank. The rent can be arranged monthly, quarterly, annually or in full, depending on the client's negotiations with the bank.

In general, the reverse mortgage is born as a way to supplement the income or liquidity of people, generally of a certain age, with whom they can have a more comfortable life or old age. For use of the reverse mortgage, the habitual residence of the residents or other assets that they do not use or have rented can be used. In this way, you can earn income from those goods that you do not use or would not like to sell.

The way of operating is as follows: banks, after appraising the property and establishing a salable range for the home, give the property a market value. Subsequently, it offers this information to the client, who may accept it or not, and if so, agree on the clauses for the disposal of the money (the temporality). In reality, what the bank grants is a reverse mortgage loan, that is, the client obtains income that is discounted from the value of the home.

How the good is recovered

Once the client is obtaining a monthly rent, the client himself or the heirs, in the event that he dies without completing the value of the property, will have to pay the value taken from the home to get full ownership of it. Otherwise, the bank will execute the property, that is, it will put it up for sale, and it will keep the value that it had paid to the client, while the part that was not paid to the client will go to the heirs.

Naturally, the bank applies a discount on the value of the apartment or on the rent payable that represents an underlying benefit of the operation, which in the event of recovery of the heirs or auction, may have a higher price than the appraisal.

Tags:  USA present accounting 

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