Property Guides and Information for the Costa del Sol, Spain

Releasing The Equity In Your Home

By Bill Blevins, Managing Director
Blevins Franks

My feature two weeks ago introduced a new equity release product for Spain, the Seniors Money Lifetime Loan. This week’s feature provides a little more information about how the loan works.

The Lifetime Loan is available to all homeowners living in Spain provided they are over 60 years old. The property must be freehold, of conventional construction, in good repair and with no, or very little, mortgage on it.

While there is a minimum loan amount of €40,000, the amount you are able to borrow depends on your age. The younger you are, the less you can borrow (in terms of the percentage of the value of your home), and the older you are the more you can borrow.

Anyone aged 60 years can borrow 15% of the value of their home. This percentage increases by 1% each year, up to a maximum of 45% from age 90 upwards.

In the case of a married couple, or any two people sharing a house specifically named as the “nominated residents”, one person can be younger than 60 years old, but not younger than 55 years. The age of the younger borrower is used to calculate the loan.

Here are some examples:

Mr Smith lives alone. He is 76 years and his property in Spain is valued at €250,000. He is able to borrow up to €77,500 (31%).

Mr & Mrs Jones own a Spanish villa worth €450,000. He is 63 years and she is 56. The loan amount is calculated on Mrs Jones’ age and they may borrow €49,500 (11%).

Mr & Mrs Brown are aged 90 and 87 respectively. Their property is valued at €150,000 so they can borrow up to €63,000 (42%).

In all three cases they will not have to pay back the loan, or the interest, until such time as they pass away or decide themselves to sell their home. If they choose to pay it back earlier they can do so without incurring any penalties.

They can all spend the money on whatever they wish – Mr Smith needs to carry out home repairs and buy a new car; Mr & Mrs Jones want to help their daughter buy a house and Mr & Mrs Brown will deposit half the money in the bank to cover any medical expenses that may occur and use the rest to supplement their future income and make their lives a little more comfortable.

If you choose not to take the full approved amount at the outset you can make use of an “express top up” facility in the future (minimum of €5,000). You can use this to draw money as and when you need it, for example to buy a new car or go on holiday.

As you get older the amount you are able to borrow will increase, so you could apply for a “further advance” (minimum €5,000, provided you meet the age requirements).

Like every other loan, interest will be due on the total amount you borrow, but unlike most other loans you do not need to make regular repayments. Instead the interest is added to the loan each month, increasing the loan balance. The final balance (amount borrowed plus interest and costs) will become due at the end of the loan period.

Most people settle the loan from proceeds from their property sale - whether they do this themselves when they decide to sell (for example to move into permanent care or a smaller, more manageable flat), or arrange for their beneficiaries to deal with it when they sell your property after you pass away. Your family can choose to repay the loan without selling the property if they prefer. (It is important to discuss all aspects of the loan with your family before going ahead.)

In the case of a married couple, or any two nominated residents, the loan repayment will be due on the second death (unless the surviving partner chooses to sell the property first).

There is never a risk that you will owe more than your property is worth. In the very unlikely event that the market value of the property does fall below the value of the loan, the loan is “capped” at the market value and neither you nor your estate will be liable for the shortfall.

The above is a summary. Anyone contemplating such a loan must read all the product details first. Full details are available from Blevins Franks at the Seniors Money office Contact us Now

September 29, 2006 | Category: Finance & Mortgages