House in exchange for pension – for whom is a reverse mortgage worthwhile?

Owning your own home means you're set for life. You don't have to worry about rising rents and can look forward to a peaceful retirement in your own home. That's a common misconception – but unfortunately, reality is often quite different. If your pension isn't enough to live on, a reverse mortgage can be a sensible option in certain cases. However, before you decide on such an offer, you should seek thorough advice from a real estate agent and also explore alternative options.

The coronavirus crisis has not only jeopardized the livelihoods of many artists, restaurateurs, and young families. According to a YouGov survey, 16 percent of homeowners of retirement age have also experienced a decline in their financial situation. For some, money becomes tight upon reaching retirement age. They often face a dilemma: selling their property could help them make ends meet, but the decision to leave their familiar home is difficult for them.

Real estate reverse mortgage: those who live long benefit

This is where a reverse mortgage comes in. You sell your property and receive a monthly annuity from the buyer for the rest of your life, while retaining the right to live there for life. However, such annuity offers are usually associated with significant discounts on the sale price. Financially, only those who live an exceptionally long life benefit from a reverse mortgage. If the owner who exchanged their house for an annuity dies unexpectedly early, the buyer still receives the property without having paid a fair price in monthly annuity payments.

A major advantage: the lifelong right of residence

For many, the decisive factor is undoubtedly the possibility of continuing to live in their own home after selling it. Therefore, it's all the more important to carefully examine the contract before signing, paying particular attention to the terms regarding residency and usufruct rights, and identifying who is responsible for the property's maintenance and renovations – this should normally fall to the buyer. A professional real estate agent is also highly knowledgeable about reverse mortgage contracts. They can thoroughly review these contracts with you and compare the terms offered by different providers, ensuring you fully understand what you're signing.

Decision criteria for or against the life annuity

Your age. The older you are, the higher the pension amount, as your remaining life expectancy statistically decreases. If you are significantly younger than 70, the pension paid out will generally be too low.

The value. Ask a professional real estate agent for a valuation report. The professionally determined market value should form the basis for a fair selling price when using a reverse mortgage.

The property must be debt-free. Some annuity providers accept a residual debt of up to 20 percent of the current property value.

Heirs. Would they like to move into your house later? If so, there may be alternatives for you to monetize your property and still continue living there.

Do you want to sell your property but still live in it? Then contact us! We will advise you expertly and discreetly about your individual options!

Notes

For the sake of readability, this text uses the generic masculine form. Female and other gender identities are explicitly included where relevant to the statement.

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

Photo: © lisafx/Depositphotos.com