How could you forget the exiting signing situation of the first mortgage?
A critical decision of a new path, before or after having small children, commitment for many years ahead from an authorized financial entity in exchange of bonding your property.
Who takes a reverse mortgage and why?
A reverse mortgage is one that can be taken by elderly persons age 60 and up.
It targets population that is almost at the retirement age or close to it, home owners that are taking mortgages at the same manner that young at their first steps are taking. Loan in exchange or property bonding.
These people need money, each one for his own reasons.
For instance: money for their children (weddings financing, real estate purchase, big abroad travel), as these are some examples there could be many more purposes.
What is a Reverse Mortgage?
- A reverse mortgage is a loan for every purpose in which there is no need to return fluently monthly payments, and is not limited in time, which is contrary to a regular mortgage.
- The regular income of the parties is not checked, and there is no need to make life insurance.
- The finance varies between 30%-50%, and as the age is higher there is a possibility to get more finance.
In order to demonstrate the issue, let’s assume that your real estate value is 2.5 Million NIS. The loan amount that you could get will vary between 1 to 1.25 M NIS. The major difference is that there is no loan return commitment, no monthly return obligation. There is a possibility of not paying at all, and gather more and more debt that will be returned after the loaner will die.
- From the bank perspective, it is a valuable deal. The property is being bonded, and it enjoys the profit of the accumulated interests. At time when the loaner decides, or when the loaner dies, the bank will get its part from the selling of the property in addition of the accumulated interest.
- Major advantage: the reverse mortgage can be paid at any point in time at and with no penalty.
- The idea is that the loaners are “living” under the account of the property, and this is a good way for people who needs finance at this age. Moreover, this is a good way which is preferred on selling the house, or taking a major big loan (that will resume in pressures due to the interest and the payments). It is important to mention that at the time of the loan, the loaners are living at their property.
Is reverse mortgage a common one?
In most of the developing countries, it is very common, however in Israel it is still at early stages.
The living costs in Israel are getting higher and higher. Young generation is getting a hard time buying its own apartment by themself, need to battle and try to arrive to a larger finance, and due to this fact needs to get help from parents or grandfathers and grandmothers.
This is where the need for a reverse mortgage was born. Parents realized and understood that if there is a possibility to help their children in buying their apartment, it is better to assist them while they are still alive and enjoy seeing them enjoying from an initial “push” which will help them start their way in a confident manner.
Reverse mortgage can also be taken from the entities responsible for mortgages, including banks and insurance companies.
In the event of death, the property is being sold, and if there are still funds available, it then transfers to the successors.
The reverse mortgage can be fully paid at any time and with no penalties, and it is vital to include this point while signing the contract.
There is a need to consider variable costs that are related to the reverse mortgage:
Interest that is being accumulated over time since the payment is not paid to the bank in regular monthly payments (contrary to a regular mortgage in which the payments are regular). Payment to lawyer for opening the file, opening a mortgage file, and payment to a property appraiser that values the property. There is no need for property insurance and payment for life insurance.