Why banks don’t like reverse mortgages

In our country, there are certain tools or financial products that have not quite reached the roots that they do have in other countries. One of these tools would be the reverse mortgage.

The reverse mortgage, although initially it can be understood as an interesting financing product to complement the retirement pension, is viewed by the banks of our country with great suspicion and resentment.

It is not a product that has neither a great demand nor a great offer; we are going to try to understand the reasons.

What is a reverse mortgage?

A quick and simple summary would be to say that it is a loan that takes the free of charge home as its base and guarantee. To do this, it is constituted as a mortgage insurance policy number on said home.

It is a product that is aimed at people of a certain age, usually after retirement, and that offers them financing based on a single payment or, more commonly, on a life annuity until their death.

Eventually, this life annuity may be extended up to the value that the mortgage has granted to the home. Once this value has been exceeded, if life annuity insurance has not been contracted at par, it would be suspended.

The mortgage allows the holders to continue living in their house, and they continue to own it, with which they can make an early cancellation at any time or sell the mortgage and pay off the debt.

Upon his death, the heirs will be the ones who, before disposing of the home, must pay the debt, take out a new mortgage, or sell the home to pay off the debt.

Why banks don’t like reverse mortgages

As we have said before, Spanish banks do not like reverse mortgages too much.

It is a product that does not appear in the catalogs, and despite some entities such as CaixaBank, they have carried out some pilot tests, and others have kept it, or keep it, hidden within their offers, neither granted nor demanded.

The first reason to take into account is the very culture of property in Spain. The culture of ownership means that, throughout people’s lives, one of the basic financial objectives is to pay for housing.

This generates a kind of taboo about what may happen in the future with the home since it is considered part of the family heritage. Therefore, putting family assets at risk and deferring a debt to heirs weighs heavily on people. But also about banking, which understands that it is a complex model for Spanish society.

The other great reason, in addition to being a high-risk operation, is that the risk of non-acceptance of the inheritance is high. In Spain, annually, there are many inheritances that are discarded so as not to assume the debts.

In the case of a reverse mortgage, this automatically means that the home will have to be foreclosed on without going into the hands of the bank. In a context in which banks have been getting rid of real estate assets for years, it is not exactly an element of attraction for them.