During the term of the reverse mortgage, the owner does not have to pay anything back to the lender - only at the end of the term is the settlement, including interest.
The problem with the reverse mortgage model is that the payments the lender makes to the owner cannot be excessive. Because the sum of all payments made must remain well below the actual value of the property, since this serves as security, even if the owner is very old. In addition, the amount of the mortgage also depends on factors such as the condition and location of the property.
For an average family house in an average location, the monthly payment should in most cases only be a few 100 euros a month, because over the course of many years not only the monthly payments but also the interest add up.
If the property owner dies or moves into a retirement or nursing home, for example, his heirs - or he too - have the choice of whether the loan is repaid or whether the property is used by the reverse lender to pay off the debt.
While the reverse mortgage can help property owners raise money in the short term, it also carries risks:
- With the reverse mortgage, the owner receives monthly installments for which interest accrues at the same time. During the term of the loan, he does not have to repay anything - in the end he or his heirs have to settle everything at once. So, the debt of the owner increases month by month.
- In the case of reverse mortgages, the owner has to face many additional costs: the lenders usually ask for a transaction fee and reinsurance against the risk of a long life – ie in the event that the owner lives longer than statistically calculated.
- The property serves as security for the lender for the reverse mortgage and can no longer be used as security for any other purpose – this also reduces the inheritance.
- The owner must remain financially responsible for maintenance costs, renovations and all other ongoing costs.
The alternative is selling the house or the apartment that is too big: If you can imagine moving into a smaller apartment when you get older, you should alternatively consider selling your house or apartment that has become too large. Since this usually brings in more than a small apartment for the elderly, there should be a large amount of money left over that can be used for subsistence.
Please note that these are explanations and not legal advice. We expressly point out that the information provided cannot replace individual legal advice that takes into account the special features of the individual case.