How do I calculate a reverse mortgage

Reverse mortgage

The reverse mortgage

The problem is not new: people take out large loans to finance their own four walls. They want to live rent-free in old age, so that their retirement income, which is lower than their working life, is sufficient for a comfortable life. A lot of money is tied up in a residential property - however, senior citizens can only benefit indirectly from this. In addition, a property still costs money, it has to be renovated, repaired and modernized at longer intervals. A modernization loan can be the solution, but this is difficult to grant and has to be repaid - the monthly installments reduce the pension income even more.

Selling and moving are not an acceptable solution for most of those affected, they would have to leave their own four walls and thus their familiar surroundings. At this point, various models of real estate annuity come into play. One of these alternatives has been established in the USA and Great Britain for years, but is only offered by a few banks, insurance companies and associations in Germany: the so-called reverse mortgage. This is also a loan agreement for which your own property is used as security. However, this loan is only repaid when the borrower moves out or dies - and the entire property is sold. As always, this model also has two sides that should be carefully weighed before a decision and compared with the other alternatives.

What is a reverse mortgage used for?

Basically, the reverse mortgage is also part of the old-age provision, because you can use this instrument to improve your pension: either a monthly pension or a one-off payment is offered in return. In principle, you are lending on your home ownership in order to benefit from this relatively inflexible asset during your lifetime. Conversely, this means that you are taking on debt again in order to supplement your income in retirement age and to be able to comfortably cover larger costs if necessary. Because with this variant you remain the owner with all rights and obligations - and you are still responsible for all value maintenance and value enhancement measures.

How does a reverse mortgage work?

The reverse mortgage follows a clear principle:

  • You contact a reverse mortgage provider who will first evaluate your home.
  • From the value he determines the amount of the disbursement or annuity, whereby you have to reckon with some deductions.
  • If you accept the offer, the provider will have a corresponding land charge entered in the land register.
  • In principle, you do not have to pay interest or repayments, they only accrue at the end - however, there may also be different regulations here.
  • The reverse mortgage is only redeemed when the property is sold - i.e. after you move out or in the event of your death: Either the liabilities are repaid or the bank takes over the property.

The fact is: the younger you are when you take out such a reverse mortgage, the less you can take out as a one-off or annuity payment - as you get older, you can expect more accordingly. That may sound like a contradiction at first, but it is due to one fact alone: ​​the older a borrower is, the fewer years he will stay in the property - and draw a pension.

In view of the relatively high risk discounts and low loan-to-value limits, many seniors are likely to be disappointed with this offer. Unfortunately, because the calculations are extremely complicated, you cannot find a reliable reverse mortgage calculator online to help you make a decision. In addition, due to the lack of providers in Germany, the reverse mortgage can unfortunately only be compared with the classic annuity models with great difficulty. If you nevertheless compare the different models, you should always weigh up how the costs incurred are in relation to the expected pension benefits. Also pay attention to the legal consequences that differ depending on the model.

Depending on the specific contractual structure, the obligation to maintain the value of the property is transferred to the new owner: If you have been granted a lifelong right of residence, for example, you no longer have any influence on which maintenance or repair work is carried out on the property - this obligation is now incumbent on them new owner. As a rule, the providers of such an annuity undertake to keep the respective object in their own portfolio until the end of the life of the seller - a further change of ownership is therefore not to be expected.

How is the reverse mortgage calculated?

It is hardly possible to understand exactly how the providers calculate the reverse mortgage: In any case, the decisive factors are the market value of your property and your age when the contract was signed. The providers deduct a risk component from the property value in order to then determine the individual loan-to-value limit. That in turn depends on how long you want to receive the pension - and what the statistical life expectancy is.

The resulting amount of the reverse mortgage is likely to disappoint in most cases, you can expect 15 to 35 percent of the current value of your property. Your age is decisive: if we assume a property value of 300,000 euros, a 65-year-old would be able to claim a maximum of 45,000 euros, while a 75-year-old would be able to claim 85,000 euros. However, this information is only based on experience, as the exact calculation formulas are not known.

The fact is, however, that the provider of the reverse mortgage can also register the complete land charge for annuity payments. So the increase in the reverse mortgage is to be hedged as a precaution.

What does a reverse mortgage cost?

The costs of the reverse mortgage are relatively high compared to the actual payout: First of all, the risk discount is applied, then of course the interest also has to be taken into account. They don't have to be paid directly, but they add up over time. Depending on the provider, deferral or other fees may apply, which are added to the loan amount and have to be repaid after the property has been sold.

What are the advantages of home capital versus a reverse mortgage?

With the partial sale of real estate, you go a completely different and completely transparent path:

  • You sell part of your property - up to 50 percent, but as the main owner you retain all rights and obligations.

You don't take on growing debt as you would with the reverse mortgage, you just have a silent partner. You will receive a one-off payment for this. In return, there is only a manageable usage fee.

Whether you want to sell the property later or bequeath it - all of this is still possible without any problems. In any case, you will be on the safe side. Take advantage of this opportunity, we will be happy to make you a free and non-binding offer.

Reverse mortgageTotal sale
Payoutright awayimmediately or monthlyright away
Remaining house shareat least 50%0%0%
Discounts from the market valueNoHigh risk discount + interestDepending on the market situation
Decision-making authorityFurther at the customer, rental through usufruct possibleContinue with the customerDecision-making authority rests with new owner
Buyback / inheritance possible?YesBasically yes, but made more difficult by debtNo
Increase in valueYes, with the remaining partYes, but on the other hand increasing debtNo
Transaction costsHome capital bears the transaction costscustomerBuyer / customer

With the home capital calculator you can easily and without obligation calculate your personal immediate payment through a partial sale with home capital.

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Reverse mortgage versus annuity

Compared to an annuity, with a reverse mortgage you remain the owner and are therefore responsible for all maintenance measures. In the case of an annuity, the rights and obligations are transferred to the real estate pension provider - you then only have one right of residence. Regardless of the amount of your pension, you should always bear this in mind. Again, a comparison to the partial sale is worthwhile. A comparison table can be found in our article Real estate knowledge life annuity.

In a nutshell

* The content, advice and information provided on the property knowledge pages are for informational purposes only and are not a substitute for obtaining legal advice