Reverse Mortgage Maximum Loan to valueRescinding the maximum mortgage loan on value
According to the explanatory memorandum of Law 41/2007, the reverse mortgage - also known as the "life mortgage" - is a finance instrument aimed at alleviating one of the socio-economic difficulties of Spain and the vast majority f the world' s poorest countries: the satisfaction of rising incomes in later years.
For the Spanish Mortgage Federation, the issue is an inevitable need, an imperative commitment that must be addressed in a much broader framework, as it criticises the act of including the regulatory treatment of this new finance item in an extra legislative decree. In addition, we describe the most important issues in the regulatory framework for reverse mortgages:
In the first supplementary decree of Law 41/2007, the reverse mortgage is defined as a loan or loan that can only be provided by banks and insurers authorized to carry on business in Spain, backed by a mortgage on immovable property that is the applicant's normal whereabouts.
There is also the option that reverse mortgage can be levied on any kind of property that is not an ordinary dwelling, although in this case it is not covered by the same regulations as set out in this first supplementary arrangement. A reverse mortgage on a common domicile is granted on the following conditions: a) that the claimant and the beneficiary nominated by him may be at least 65 years of age, or that they are highly dependent on others; b) that the borrower has arranger the loan or loan through regular or one-off payment.
d ) that the pledged property has been evaluated and insurance against damages has been taken out in accordance with Act 2/1981 of the Mortgage Market Regulation.
As soon as the pledged borrower ceases to exist and there are no other remaining beneficial owners, the debtor's statutory heirs may choose (i) to terminate the liability within the time limit set, by paying the full amount of the due liability plus interest due to the mortgage lender, without the lender being able to claim damages for the remission, or (ii) not to reimburse the due liability with its extra interest, but instead to allow the mortgagee to obtain the adequate amount from the inherited property.
For this purpose, the current second subparagraph of the Mortgage Act is explicitly deleted, which forbids the option for the mortgage to insure interest for a term of more than 5 years. Against this background, the maximum amount of debts attributable to the mortgage borrower should be determined by the proportion of the value of the evaluation at the time the reverse mortgage was executed.
As soon as the borrower has all the amounts necessary for this percent, the old or dependant borrower can terminate the sale of the loan and the loan will still earn interest. Redemption of the indebtedness (including interest) on the part of the company crediting the loan is usually effected at the time of the mortality of the obligor (or ultimate beneficiary) by remission of the indebtedness by the beneficiaries or by the provision of the mortgage bond by the lender.
In the first case, the purpose of the first supplementary disposition, as a ground for premature cancellation of the mortgage, is the optional transfer of the goods pledged by the mortgagor before his own life, unless he replaces the guarantee sufficiently. A number of savings, as well as a number of registry charges and civil law levies, are also laid down in connection with the granting of the reverse mortgage.
To sum up, while there is some recent information, such as the ageing of the populace or the rise in the proportion of home ownership, that could raise the chances of a successful medium-term or long-term outcome for this new finance instrument, there is also the contradiction of other argument ation that collides directly with the prospects of a successful reverse mortgage.
This way, the latest trend in the commercialization of mortgage lending is to reduce the terms for repaying the same to 40 or 50 years, with the effect that the reverse mortgage can become an ineffective commodity for their prospective beneficiary.