The Narrow Road To “Senior” Mortgages

2021-02-26   |   by CusiGO

With very few exceptions, seeking money to buy a bad home is consistent with being an elderly person. Typically, a young couple with a stable job signed up for a mortgage to allow their members to pay for the purchase of their own house, which is still a typical feature of this kind of transaction. Nothing can stop people over 65 from moving in debt or getting a second home. So why are mortgages for this kind of public so rare (or even nonexistent)? Or, in other words, what obstacles must the elderly overcome in this process?

Although the motivations for buying a house when you reach a certain age may be as diverse as those at other levels, the most common motivation is “to build your own home near your child’s home, to return to your birthplace, because Lola Alcover, Secretary of the General Council of the association of real estate agents (coapi), said: “after retirement, live or choose a vacation destination as a permanent or seasonal residence.”. In many cases, he added, it is “a small one bedroom or two bedroom home, because at these ages children are less likely to be supported and tend to prefer lower floors.”.

As for the loans that can finance the purchase of real estate, the lack of these loans is obvious. “There is no product specifically designed for the elderly, which is a complex audience for entities,” concludes Simone columbelli, head of mortgage at iahorro, the banking comparator. He added that this means that “the general rules of the game for senior mortgagors are the same as for everyone, and the conditions for getting more or less financing depend on everyone’s financial position.”.

Therefore, the most important thing is to provide security for banks through “good income level, high health and absolute stability”. Some young family members can also apply for a loan co guarantee, although “it is often necessary – for example, children – to prove that they are financially able to maintain a share of the loan,” he stressed.

In no case will the maturity of the mortgage exceed the specific age of the borrower, which Colombia has set at 80 and Alcover at 75, “although in some companies the maturity of the mortgage will be reduced to 70,” he said. The reason for this restriction is that banks will take excessive risks when the loan term exceeds the expected remaining term of the mortgagee. “We have to be realistic and bear in mind that in practice, for the same reasons of caution, the signed mortgage business will always be at a low level, away from these restrictions,” Alcover insisted.

The effect of this cap on mortgages would be a reasonable increase in monthly instalments, because for people aged 65, the time to repay the loan would be more limited, about five or 10 years. In Alcover’s words, “this will be a considerable installment payment,” although he admits that “the amount awarded is unlikely to exceed 40% or 50% of the assessed value of the property purchased”, whereas in other cases 80% is normally applied as a general limit.

Moreover, it does not seem like a viable option to get a bonus by buying mortgage related products, which are common in other cases. For example, columbelly warned that life insurance “is usually aimed at young people, because in the case of the elderly, it is difficult to obtain higher personal data and may greatly increase the final price.”.

In Alcover’s words, all these limitations explain, on the one hand, the lack of specific products for the elderly. On the other hand, “the demand is very limited,” he said. “The number of sales transactions in these age groups is quite moderate, and many of them do not require mortgage financing, because the funds to pay for these transactions usually come from other sources, In most cases, sell the old house. ”

“The most important thing is to figure out what we want to mortgage, and if we have a high-level profile, make sure it’s really necessary,” suggests colombelli of iahorro. “Perhaps in some cases, there are other more interesting possibilities, for example, if the mortgage is to help the child, as the guarantor rather than the holder; or if the purchase of another house is for oneself, the sale of the ownership of one’s own house (transfer of ownership rather than the right to use it); Or sign a reverse mortgage [to get money or monthly income by mortgaging a free home that has been purchased]. It will depend on each case, “he insisted.

However, Alcover of the coapi General Council does not recommend the transfer of nuda property to usufructuary rights because it means that the market price obtained from the sale is much lower than the market price only theoretically stipulated in the inheritance and gift tax act. On reverse mortgage, he stressed that “in any case, the higher amount covered by reverse mortgage usually does not exceed 50% of the real estate appraisal value. When this ratio is reached, the elderly will no longer deal with their income and the debt will continue to generate interest; therefore, this is a model, Unlike normal mortgages, maturities are getting bigger and bigger. “