What is a “reverse mortgage” or “pension mortgage”?
In order to receive a loan immediately, you could pledge an existing and free real-estate property as guarantee, against reimbursement of the loan (+ linkages + compound interest) (“the loan plus its costs”) only at the end of the loan period.
Who can get such a loan?
Only “older” people of the third age, who own a clean residential real-estate asset, and who are interested in an immediate liquid amount of money, for their livelihood or other immediate needs, without selling their home.
Who is a “senior citizen”?
Over the age of 55 or sometimes over 60 (the youngest of the borrowers when there is more than one).
When do I need to repay the loan and his costs?
The borrowers are not required to repay the loan on a specific date, nor are they required to make monthly or other payments to the lender, for the entire life of the loan (“balloon” loan), as long as they live in the property and do not sell it, for up to a period of 30 years.
Can a reverse mortgage be obtained on any residential property?
The borrowers must be duly registered as the sole owners of all rights in it. The property must be ostensibly free of liens and for residential purposes only.
Sometimes, a low balance of conventional mortgage existing on the property can be replaced with a reverse mortgage.
In order to approve a reverse mortgage, have you to purchase of a property?
In a conventional mortgage, the mortgage must be for the purpose of purchasing an apartment or another kind of property.
With a reverse mortgage, you can get the loan for any purpose, including helping children, financing nursing care for old age, moneys for daily living, purchasing a right to sheltered housing, renovating the apartment, and more.
How is the loan amount determined?
The loan amount ranges from 30% to 60% of the value of the property (which will be determined by a real-estate appraiser admitted by the lender but financed by the borrowers), but depends on the borrowers’ age and expected life expectancy.
Is it necessary to check the financial capacity of the borrowers?
There is no need to examine, as borrowers, your financial capacity and solvency – only the property is pledged to the bank and only from it can the bank be repaid, not from other assets of you.
Is life insurance, guarantors, etc. necessary?
It depends on the lender’s practices.
In this regard, in most cases, the terms of a reverse mortgage are more flexible than a conventional mortgage, and usually, life insurance (which is expensive at these ages) is not required, nor are there any guarantees (except sometimes the consent or guarantee of potential heirs).
So, when do we pay the loan back?
In most cases, after your death as borrowers, the property will be sold by your heirs, and the amount collected will be used to repay the loan plus its costs, while the net balance will be transferred to your heirs.
The repayment of a reverse mortgage is not necessarily conditional on your death as property owners, and even if you leave your home (for example, to move to a nursing home), sometimes the lender will already require the repayment of the loan plus its costs, and sometimes not yet.
However, the loan plus its costs will be required if your apartment is sold.
Is it possible for you or your heirs to repay the loan themselves and keep the property?
Yes.
Usually, the reverse mortgage can be repaid at any point in time, without an early repayment penalty, but this should be confirmed when signing the contract.
What is the interest rate on such a mortgage?
The interest rate is usually higher than that of a conventional mortgage, and you should be especially alert to the heavy amount that will be required to repay the loan in full (balloon), if only at the end of the period.
Who gives a reverse mortgage?
Almost any entity that provides mortgages, including insurance companies and some banks.
Reverse mortgage ways?
It depends on the lender and the borrowers’ needs.
To receive the loan money, there may be different alternatives, such as a fixed monthly supplement to income, or a flexible monthly supplement (e.g. linked) to income or even a growing one.
To repay the loan money and its costs, there may be various ways, such as paying a monthly repayment of interest only, or repaying all loan and costs in the future upon the end of the loan, including all its increases.
Are there additional costs?
As with any mortgage, there are expenses for opening a mortgage file, and the cost of the appraisal that determines the value of the property,…
Is the intervention of a professional advisor needed today?
Yes, before taking the loan, it is definitely highly recommended to consult a mortgage agent, an accountant, a lawyer, who speaks your language and who are familiar with this relatively and complex new field in Israel.
We remain at your disposal and at your service on this matter as well,
Adv. Sally Zajfman sally@isralegal.com
