March 28, 2018 On October 23, 2014, the Sejm adopted the Reverse Mortgage Act. Pursuant to the regulations, the borrower in exchange for the transfer of property rights to the bank can count on a lifetime annuity. There is 5 million pensioners in Poland, of which 2.5 million owns real estate. Unfortunately, banks are passive and do not introduce the product. The market does not like a vacuum, which is benefited by mortgage funds offering beneficiaries an inverted mortgage – i.e. retirement for an apartment.
Reverse mortgage – what is it?
Reverse mortgage is a relatively fresh banking product. The act regulating the above-mentioned financial product is the Reverse Mortgage Act of October 23, 2014. Under the law, only banks can provide such services. The regulator is the Polish Financial Supervision Authority. The Sejm decided to normalize the market due to the growing interest in the product and supply of mortgage funds, providing the so-called retirement for an apartment.
Reverse mortgage is mainly targeted at older people. However, the Act does not provide for age restrictions for the borrower. Therefore, theoretically, young people can take advantage of the reverse loan offer.
The service consists in the fact that the borrower pledges his property to the bank. In return, he receives money – in a one-off payment or in installments. Most importantly, the beneficiary may live in a secured house or flat throughout the entire loan period. After the borrower’s death, the deceased’s family has the right to pay the debt and take over the property. If the heirs do not settle their debts within 12 months, then the bank has full rights to the secured property.
Important – if the family does not decide to pay back the loan, the bank is obliged to refund the difference between the real value of the property and the outstanding amount due to the reverse mortgage.
Reverse mortgage – the amount of benefit
Reverse mortgage is a popular product in Western Europe. The solution is most popular in Great Britain. It is estimated that the value of reverse mortgage contracts in the Islands is almost EUR 2 billion. The customer usually receives 30-40 percent from English banks. secured property.
If a Polish bank would make similar assumptions, then with a property value of 250,000. The beneficiary would receive PLN 400-600 per month. Naturally, as the value of the property increases, the amount of benefit paid would increase.
In a situation where a reverse mortgage offer would be used by a marriage, at the time of the death of one of the borrowers, the other receives installments after the deceased. But – only in proportion to the property inherited from the dead. For example – the husband inherits the inheritance along with his son from the deceased wife. Then the property should be divided between the father and son. As a result, both will get half of the succession. Ultimately, the husband will have 3/4 of the property and will receive the same amount from the bank. To sum up – initially the installment for spouses was 2,000. zł. After inheritance formalities, the living borrower will receive PLN 1,500.
Reverse mortgage agreement
Pursuant to the Act, anyone interested in a reverse mortgage should first receive an information form from the bank. The form should contain:
- loan amount,
- date and method of payment,
- credit costs,
- method of payment of costs,
- rights and obligations arising from the contract.
The Act precisely defines what the contract should contain. Importantly, if after signing the documents, the borrower finds that he does not want to use the service, he has the right to resign from the reverse mortgage without incurring costs.
Reverse mortgage – banks offer
Immediately after the introduction of the reverse mortgage law, four banks wanted to include the above product in their offer:
- PKO BP,
- ING Bank,
- Bank Zachodni WBK,
- BPS Bank.
Unfortunately, no bank has decided to introduce the product to its offer. Reason? Banks are afraid of a reverse mortgage. First of all – it is not known how long the potential borrower will live, and secondly what value the flat will have after the death of the recipient. Banks also do not want to introduce the service to the market due to the high costs of product launch and monitoring. Interest rate would be the bank’s only income, similarly to mortgages and loans.
Pension for an apartment in mortgage funds as a supplement to the pension
Pension for an apartment is not a product within the meaning of the Reverse Mortgage Act and is not subject to banking law. Therefore, companies that offer annuities are not controlled by the PFSA. Mortgage funds operate on the basis of the provisions of the Civil Code – art. 903-907 and art. 908-916.
The main difference between the mortgage and banking offer is that the recipient ceases to be the owner of the property at the time the contract is signed. In return, the financing entity allows the beneficiary to use the property for life. Moreover, the mortgage fund is obliged to pay the amount specified in the contract – once or in monthly installments. The benefit ends with the death of the seller of the property.
The amount of pension for an apartment depends on the value of the property. According to reports from the DOM Mortgage Fund, the annuity in most cases does not exceed PLN 1,000. Considering the average amount of old-age pension in Poland – PLN 1780 net, a reverse mortgage may be a good addition for a pensioner.
Mortgage rent – threats
Lifetime annuities are not regulated by the state. Among other things, because of this, there is a risk of losing the right to live in a sold property. The most dangerous for the beneficiary are situations when:
- bailiff proceedings are pending against the owner of the property (mortgage fund), which may result in a change of ownership of the property. As a result, the entity responsible for paying out the mortgage will stop paying the benefit;
- the company that owns the apartment will go bankrupt.
Reverse mortgage and pension for an apartment – summary
Both the reverse mortgage and the reverse mortgage offered by mortgage funds have many advantages. First of all – the low creditworthiness of pensioners, limits their access to cash loans and loans online. The product opens a door for them to liquidate capital in the form of real estate. Secondly – it’s just a nice supplement to your pension.
However, the main downside is the fact that Polish banks do not offer an inverted mortgage. Therefore, seniors are forced to use the services of mortgage funds. Unfortunately, the funds are not regulated by the PFSA, which means that there is a significant risk of their insolvency.