Introduction-

A reverse mortgage is the encumbrance of an existing apartment for the purpose of receiving money from the bank. The mortgage is intended for retirees aged 60+, who need a large sum of money for various needs: helping children, traveling abroad or financing life in old age. With a normal mortgage, people borrow money from the bank for the purpose of purchasing an apartment and must repay the mortgage in monthly interest-bearing payments.

Pensioners at retirement age will have difficulty obtaining a large amount of money in a normal way, therefore they can convert their apartment by working for a bank or other financial body, and receive a large amount of money in return.

Advantages of the reverse mortgage-

• A reverse mortgage is a loan for any purpose, which is not limited in time.
• There is no need to pay it back in regular monthly repayments.
• There is no need to take out life insurance as with a normal mortgage.
• Income tests are not done (because without regular refunds, there is no interest in regular income).
• You can pay off the reverse mortgage at any point in time and without penalty.
• A reverse mortgage helps to finance the needs of the borrowers at the expense of the property.
• It is better for retirees who need money to take a reverse mortgage and not sell the house, instead of taking a normal interest-bearing loan and deferring the repayments.
• The borrowers continue to own the house and are allowed to live in it.
• For him, the bank is calm, because he has a lien on the house. The bank’s profit is from the interest that is accrued and recorded in the bank’s books, but is paid only at the end of the mortgage period.
• When the borrower decides to sell the apartment or passes away, the proceeds from the sale of the apartment will cover the loan amount plus the accrued interest.

Helping children-

In light of the high cost of living in Israel and the growing dependence of young people on their parents, the need and desire of parents to help through greater funding has increased and they are working to realize a reverse mortgage. The expectation is that the process of using a reverse mortgage will expand. Many parents want to help their children later in life, than to help through the inheritance, because the children need help now.

Financing the old age-

A reverse mortgage is an effective way for retirees to get a large sum of money that will allow them to finance the rest of their lives after they stop working. Sometimes family members are unable to help their parents and this is the only way out. The amount of money that the pensioners can receive depends on the value of the apartment, the age of the borrower and it can reach half of the value of the apartment, therefore, this financial solution will significantly affect the quality of life of the pensioners and their families.

Who is eligible for a reverse mortgage?

60+ years old, who own a residential property without encumbrances, foreclosures or debts. Even those who have a low mortgage balance may replace a standard mortgage with a reverse mortgage.

The entities that give a reverse mortgage:

Banks and insurance companies.

The Actual Execution Process:

Submit an application to a body that finances a mortgage and receive a sum of money in exchange for pledging the property.

Returning the loan:

There is no need to return money immediately. The money will be returned to the lender through the sale of the property or the payment of the reverse mortgage. If there is a balance left when the property is sold, the surplus will go to the borrower or his heirs.

Due date:

It is possible to pay off the reverse mortgage at any time and without penalties (but it is advisable to verify this when signing the contract).

Restrictions on the use of money:

There are no limitations. The money given in exchange for a reverse mortgage can be designated for any purpose. T

he loan amount that can be received:

The amount depends on the age of the borrowers. It usually reaches up to half of the property’s value. As the age increases, the loan rate in relation to the value of the property increases.

Different routes to a reverse mortgage-

• Old age financing – borrowers who want to continue living in their apartment and need money to live on, can request a reverse mortgage, which will be repaid at the end of their longevity or after leaving home.
• Nursing home financing – borrowers who need money to move to a nursing home will receive the money until the end of their longevity or until they leave the nursing home.
• Covering the debt of the regular mortgage – for those who still have a mortgage on the property, and wish to stop paying monthly payments, can cover the debt by taking out a reverse mortgage and leave more money to live on.

The interest rate used in a reverse mortgage-

The interest rate of a reverse mortgage is slightly higher than a standard mortgage (between 0.3% and 1.3% above standard mortgage interest). Reverse mortgage interest accrues over time.

Additional costs:

• Fees for the lawyer, who signs the documents to open the case.
• The cost of opening a mortgage portfolio – between 1% and 2% of the value of the property.
• Fees for the appraiser, who determines the value of the property.
• Insurance on the apartment.
• Payment of service fees.

Reverse mortgage flexibility –

The borrower can repay the mortgage at a time that suits him. In addition, the procedure for taking out a reverse mortgage is relatively simple. In most cases, there is no need for guarantees or securities, because the property constitutes the security, therefore the conditions of the banks are more flexible.

Disadvantages of the reverse mortgage –

The interest on the mortgage increases over time. Additional related costs are: hiring an appraiser, paying a lawyer and paying management fees. Also, there is an influence here on inheritance. If there is no ability after the borrower’s death to return the loan money, the apartment will be sold and the inheritance will go down the drain.

Recommended if so:

Check in advance the positive and negative financial implications of taking out a reverse mortgage.

In conclusion-

A reverse mortgage is a safe and available financial solution for those who have difficulty raising money through a loan from the bank or other entities. It contains many advantages and solutions to difficulties, which without it would have been difficult to solve. The ability to raise a sum of money relatively easily can improve the quality of life of the elderly population and the life of the entire family in many respects.

Since it is a financial product with advantages and disadvantages, it is important to check the feasibility of the transaction, to examine the current and future financial situation of the borrowers and possibly also the heirs. For this purpose, it is recommended to contact a professional independent of the banks, and receive advice and a feasibility study.

Reporter: Maxim Weizman – economist, entrepreneur and real estate man, owner and founder of Weizman Consulting and Mortgages!