10.04.2017
Pensioners find themselves on the edge of survival: the average size of pension payments in 2016 amounted to UAH 1828.3. Over 60% of pensioners receive pensions less UAH 1700.
Perhaps the only asset owned by the elderly people is real estate. However, its service today is not cheap. This gives serious reasons to speak about the lack of funds for retirees to cover their daily needs, according to Andriy Dub, CASE Ukraine Center for Social and Economic Research economist.
The financial tool by which older people can receive money from their homes and still remain living in it is reverse mortgage. That is a loan which is provided against security of real estate and (if the contract is performed) does not provide for mandatory return of the borrowings by the person who took it.
That is, it is almost home sale by installments with that difference that the person will live in the property, even after he/she is paid all the costs.
The reverse mortgage`s recipients circle is limited. The reverse mortgage can be claimed by a homeowner who has reached a certain age (for example, in the US – 62 years, in the UK, – 55 in Australia – 60, in Spain – 65 and in Poland there is no age limit) and resides permanently in an apartment or house, which secures the reverse mortgage. Also the homeowner keeps the real estate in a good condition. Reverse mortgages are provided against security of housing located in the large (sometimes small) cities, the expert clarifies.
The benefits of reverse mortgages are:
- A chance to take advantage of the cost of housing to improve your well-being without leaving it;
- No need to repay the loan as long as the person does not decide to leave or dies;
- Flexibility of payments (single, occasionally, credit line, combined);
- The possibility of arranging a credit line which can grow (the reserved but temporarily unused funds are awarded interest as if these funds were put on deposit);
- Lack of condition of targeted use of funds;
- No further responsibility for the loan;
- The money is not taxed and do not affect the intended social benefits.
The main risks are:
- High cost (benefit recipient should cover at his own expense the costs of reverse mortgage organizing and insuring home from its cost reduction or loss);
- Welfare downing after recipient stops receiving payments on a reverse mortgage (he/she should go on paying tax payments (related to real estate), insurance premiums (for reverse mortgage contract) and maintaining housing in good condition – at his/her own expense);
- Home as an anchor (one should not leave the house for more than 12 months).