Confusion over the pension system is prompting more and more people to look for new opportunities to raise additional funds for retirement. Many future pensioners are aware that the amounts they will receive from ZUS and OFE will not be enough for a dignified life. In this situation, more and more people may be interested in an inverted mortgage.
Second retirement from the bank
Reverse mortgage has been functioning for some time in Western Europe and the United States. Institutions offering this product are also appearing in Poland, but they are not yet banks. The reverse mortgage mechanism is not complicated. A person approaching retirement age, who owns a residential property, can sign a contract with a bank or insurance company, under which for the rest of his life he will receive benefits from this institution, which can be described as an inverted mortgage. In return, after their death, the person’s apartment or house is transferred to the institution providing the reverse mortgage. In the case of a normal mortgage, the bank grants the borrower a loan and enters the mortgage in section IV of the Land and Mortgage Register, and the borrower repays the installments to the lending institution on a monthly basis. In the case of an inverted mortgage, the bank also enters the land and mortgage register, but it is the borrower who pays the borrower monthly installments.
The amount of these benefits depends on the age of the owner of the apartment and the expected length of his life as well as the value of the property. The money that the bank will pay every month may not be equal to the installments that would have to be paid for a loan for a property of the same value, but these amounts may be much higher than the pensions paid from ZUS and let you enjoy life in autumn. After the death of the owner of the property, the bank takes over his apartment, and the profit from his sale covers all costs of paying out the loan, including interest.
Two sides of the coin
A reverse mortgage can be a very popular product because many people will not be able to live with dignity from their pension. Still, few people have savings accumulated under the third pillar. A reverse mortgage will therefore be the easiest way to receive additional funds. Benefits can be paid on a monthly, quarterly, annual or even as a one-off payment basis. In order to sign a contract with a bank regarding a reverse mortgage, you do not need to have adequate creditworthiness – so for some retirees this may also be the only chance to receive additional money from the bank, as they would not be able to get a normal loan.
There is no rose without thorns. Using an inverted mortgage will mean depriving your heirs of capital of high value. In our country, however, the flat after the death of its owner is usually rewritten as family members. So this can be objectionable to many people who were hoping to receive property inheritance. Western societies openly accept the right to self-determination about their property – in Poland this will probably still require some changes in society’s mentality.
Although currently no bank in our country offers an inverted mortgage, non-bank financial institutions are already appearing on the Polish market, offering a very similar product. However, it can be expected that the introduction of an inverted mortgage will be the next step in the development of the Polish mortgage market. This topic is increasingly discussed and some banks are already preparing simulations of risk and profitability of introducing such a product to their offer. The reverse mortgage will probably be available to people who will enter retirement age in a few years.