More and more foreigners are deciding to start a new life in Spain when they retire. According to the National Statistics Institute (INE), more than 1.2 million foreigners over the age of 65 reside in the country. For this group, managing financial resources is key to maintaining their quality of life, and to do so, they seek financial advisors in Spain to find alternatives that will help them cope with unexpected expenses.
One alternative that has gained popularity in recent years is the reverse mortgage. Although little known in Spain, in countries such as the United Kingdom and the United States, more than 30% of retired homeowners have considered this option as a way to supplement their pension.
What is a reverse mortgage?
A reverse mortgage is a solution that allows you to enjoy the present while thinking about the future. It is a practical and secure way to generate income from your property while continuing to live in it, because peace of mind is also part of your legacy.
A reverse mortgage provides perpetual monthly income to enjoy your retirement. Unlike a traditional mortgage, instead of paying monthly instalments to the bank, it is the bank that pays the owner. The loan is then repaid after the death of the owner by selling the property, unless the heirs decide to settle it and keep the property.
Advantages of a reverse mortgage
The fact that this financial alternative is booming in Spain is due to all the advantages it offers to those who take out a reverse mortgage:
Financial flexibility during retirement without selling your home
Homeowners who take out a reverse mortgage will receive guaranteed extra income for life by earning money each month without having to give up their home.
No monthly repayments during your lifetime
Reverse mortgages are not subject to tax. Payments are tax-free. Interest and fees accumulate and are settled at the end of the contract, which facilitates financial planning during retirement.
Can supplement pension income or cover healthcare costs
Many homeowners will be able to supplement their pension income and cover necessary expenses thanks to the capital received.
Retain ownership and continue living in your home
The owner retains the right to use and enjoy the property until their death, which provides security and stability.
Disadvantages and risks to consider
However, there are some considerations to bear in mind before signing any contract, as senior reverse mortgage services may have some small print.
High fees, interest accumulation, and reduced inheritance
The associated costs are usually higher than for a conventional mortgage. In addition, interest accumulates, reducing the final value of the inheritance that the heirs will receive.
Risk of losing your home if the conditions are not met
As with any mortgage agreement, there are conditions which, if breached, could harm the owner, causing them to lose their home.
Fewer options if you decide to move or need long-term care
A reverse mortgage is designed to allow the owner to remain in the property. If the owner needs to move to a care home or another country, the product may no longer be attractive or viable.
Who should consider before a reverse mortgage?
Not all retired people who own property in Spain can apply for a reverse mortgage. It is tailored to certain profiles:
- Retired individuals with low incomes but significant assets
- Individuals without heirs
- Individuals who need to move soon
- Individuals who wish to leave their home to family members or close friends
However, regardless of the owner’s circumstances, it is essential to seek professional advice before purchasing a product in order to assess its suitability for the individual case.
Is a reverse mortgage available in Spain?
Yes, although it is a relatively new term for the Spanish population, it is becoming increasingly popular and many people over the age of 65 are already taking an interest in this alternative.
Hipoteca inversa under Spanish law
In Spain, reverse mortgages are regulated by Law 41/2007, which establishes a specific legal framework for this type of financial product intended for people over 65 or those with severe dependency.
How can apply in this country?
It is managed through authorized financial institutions and insurance companies. Applicants must meet requirements regarding age, property ownership and, in some cases, residence.
Financial and legal advisor at Pellicer & Heredia
As we have said before, professional help is essential. Pellicer & Heredia offers comprehensive advice for foreign residents in Spain who are looking for secure financial solutions tailored to their personal and financial situation. The law firm will protect all your interests and rights so that you can maintain the quality of life you deserve. They will ensure that your retirement in Spain is truly peaceful and secure. Your home can be the key to enjoying the lifestyle you have worked so hard for.