It is common that many older people do not have a sufficient income to cover their needs or they simply prefer to enjoy an income level higher than their actual income and they own a house of a certain value. Exchanging that house for money, while continuing to live in it, is called a reverse mortgage.

Commonly known as a "lifetime mortgage" or "reverse mortgage", it is basically explained as the opposite transaction of what a "mortgage" is normally understood to be. That is to say if a mortgage is commonly understood as an "instalment purchase" of a house, this transaction would be explained as receiving, in instalments, the money you would obtain from the sale of your house, while you continue living in it, until your death, at which moment the financial entity becomes the owner of the property.

Actually, a "lifetime mortgage" is a loan secured by real estate, that is to say, a business by which an individual owning a property receives a monthly income, determined by several factors, and, after the owner’s death, the heirs shall have to pay back the loan or the financial entity shall become the property’s owner (which might result in the sale of the property in order to pay back the loan, and the money remaining after the sale, if any, would be for the heirs).

Lifetime mortgages appeared in the U.K. around the year 1965. In the U.S.A., these mortgages appeared later, in the year 1989.

In Spain, the majority of the population prefers owning a property rather than renting. A determining factor is the older age of people who take out this kind of mortgage; also, Spain has some favourable characteristics for the existence of a market for these transactions: in 2050, it will be the second country, after Japan, with the oldest population, with 35% of the people over 65 and with a longer life expectancy.

Normally a minimum age for contracting these mortgages is required, which in Spain is around 70 (74 for married couples).

When contracting this kind of mortgage, you are usually offered the chance to receive an initial lump sum generally used to pay the costs derived from the execution of the loan, to make some improvements or renovations in the house, or similar projects.

From that moment on, you will periodically receive amounts of money, that in the case of some Spanish financial companies that provide these mortgages, can amount to 90% of the initial value assessment of the house.

Another relevant question is to decide if you want to sign a loan from which you will obtain a temporary income, i.e., several instalments throughout a certain period and once this period has ended, you do not receive any more payments. Or, on the contrary, you prefer to receive a lifetime annuity (i.e., to continue receiving money while you are alive); in this case, you are performing a financial transaction and signing an insurance policy that guarantees lifetime coverage.

In no case, do the owners of the properties lose ownership while they are alive. Moreover, the heirs do not lose ownership either: in fact, the heirs may opt to keep the property (paying the debt with their savings or creating a new mortgage on the property) or sell it, keeping the remaining money after paying back the loan to the financial entity.

The expenses for a house valued at 400,000 euros used to be 9,000 euros, which was discounted from the amount you were going to receive. Nevertheless, now there are some legal reductions for expenses, e.g., title deeds, Notary’s fees, Registry’s fees, taxes, etc.

It is not required that the property on which you are securing your loan is your regular residence (or main residence where the person or couple signing the mortgage resides). It is also interesting to keep in mind those cases in which, if it is allowed, the person receiving the payments can rent the property on which the mortgage is secured, which would provide an additional source of revenue.

Likewise, in this type of transaction, the sociological and/or psychological factors should not be ignored, such as the reluctances and fears that the elderly might suffer when getting rid of one of their main assets, especially when it is their home, purchased perhaps after many years of saving and where they have spent part of their lives.

Matters related to the legacy also play an important role, with regard to the owner, who sometimes does not want to leave a mortgaged asset to their descendants.

On the other hand, the relatives might see the transaction as a way to pay for the elderly person’s needs, or simply as a way for the elderly person enjoys a higher standard of living, thanks to the goods that he or she possesses.

The possibilities for a lifetime mortgage depend of the value of house. Some entities require that the value of the property is higher than 200,000€

In the next years, some changes related to lifetime mortgages and similar businesses are likely to occur. Undoubtedly, this sector is booming and, over the next few years, the number of lifetime mortgages will continue to increase.