SERVIZIReverse Mortgage

What is the Reverse Mortgage?

Reverse Mortgage in Italy is called “Prestito Vitalizio Ipotecario” (PVI) and is a financial product specifically for people over the age of 60, whose main objective is to provide a source of liquidity while retaining ownership of the property offered as collateral. This type of loan is a valuable resource for seniors who may be in financial need but at the same time own a valuable property. Here is a detailed overview of how the lifetime mortgage loan works, its origins, and how it is perceived in the Italian financial landscape.

Reverse Mortgage overview?

The process and operation of the lifetime mortgage loan (PVI) was introduced by Law Number 44/2015 with amendments. This loan allows people who have reached the age of 60 and who own property in Italy to access credit by securing it with a mortgage, on their home.

With this loan people can receive a sum of money without being obliged to sell their apartment or any other family property. Ownership of the property remains with the owner. Upon his death, the heirs have the option of repaying the debt and keeping the property or allowing the lending institution to sell it to cover the debt. The remaining amount from the sale is given to the heirs.

It is important to note that these loans are only available to people who own property in Italy. In addition, those who obtain a PVI also have the flexibility to settle the debt with the lending institution at any time, thus freeing their home from any mortgage obligation.

In cases where the applicant for this loan has been married or cohabiting with another person for at least five years, and if both partners consider the mortgaged property to be their joint residence, both spouses or cohabitants must sign this contract.

If one of the two owners of the property has reached the age of 60, this rule still applies.

Requirements and documentations

REQUIREMENTS

A life mortgage loan is a type of loan that does not require the applicant to provide receipts or cost estimates. The borrower has the freedom to use the amount received as he or she sees fit.

To apply for this loan, the following requirements must be met:

  1. The applicant must be at least 60 years old.
  2. The applicant must own property exclusively in Italy.
  3. The property must not already have a current mortgage.

DOCUMENTATIONS

When applying for a life mortgage loan, the following documents must be provided to the bank:

  1. A valid identification document.
  2. Social security number.
  3. Family status information.
  4. Contextual or cumulative certificate
  5. Notarized preliminary report

FAQ

Frequently Asked Questions about Reverse Mortgage
What is the maximum amount that can be obtained?

The amount that can be obtained with a life mortgage loan varies according to the value of the property and the age of the applicant. The percentage granted increases with age. For example, if the applicant is 60 years old, he or she can receive up to 15 percent of the market value of the house. The percentage increases to 50% if the owner is 90 years old. The value of the property is determined by an appraiser.

Older persons may qualify for a loan of up to 50% of the value of the property. However, the maximum amount disbursed cannot exceed 350,000 euros.

What happens in the event of death?

If the borrower dies, the successors will inherit both the property and the debt associated with it. They will have two options: pay off the debt and keep the property or allow the bank to sell the property to settle the debt. If funds remain after paying off the debt, they will be distributed among the heirs.

If the heirs choose to repay the loan by paying off the amount, they must notify the bank within 12 months of the borrower’s death.

What is the life expectancy of a reverse mortgage?

The life expectancy of a reverse mortgage is the amount of time that the loan is expected to last. It is calculated based on the age of the youngest borrower and their life expectancy. The life expectancy of a reverse mortgage can range from 10 to 30 years, with an average of 20 years.

Who benefits most from a reverse mortgage?

With a reverse mortgage, seniors have a valuable tool available to them that can be utilized as part of their strategy in financial planning for retirement. There are many features of reverse mortgage loans that can benefit seniors who are looking to supplement their retirement income.

What happens if you live too long on a reverse mortgage?

If you live too long on a reverse mortgage, it is possible that the loan balance will exceed the value of your home. This is known as being “underwater” on your mortgage. If this happens, you will have several options:

  • You can continue to live in the home and pay the interest on the loan. However, you will not be obligated to make any principal payments.
  • You can sell the home and use the proceeds to repay the loan balance. If the proceeds from the sale are not enough to repay the loan, the lender will forgive the remaining balance.
  • You can allow the lender to foreclose on the home. If you choose this option, you will have to move out of the home and you will not receive any money from the sale of the home.

No matter which option you choose, you will never be held personally liable for any amount that exceeds the value of your home. This is because reverse mortgages are non-recourse loans.
It is important to note that reverse mortgages are complex financial products with a number of potential risks and drawbacks. Before you consider getting a reverse mortgage, it is important to talk to a financial advisor to make sure it is the right option for you.

What is the interest rate on a reverse mortgage?

The interest rate of a reverse mortgage can vary depending on the lender, the borrower’s age, home equity, and other factors.
Reverse mortgages can have fixed or variable interest rates. Fixed rates remain the same for the duration of the loan, while variable rates can fluctuate based on an underlying index.
It is important to note that the interest on a reverse mortgage accrues over time, but the borrower does not have to make any monthly mortgage payments. Instead, the interest is added to the loan balance, which is due when the borrower sells the home, moves out permanently, or dies.

In what situation is a reverse mortgage a good idea?

Homeowners aged 62 and older with a significant amount of equity in their homes can fund their retirement by taking out a reverse mortgage, meaning a loan that converts a portion of their home equity into cash.

What is the negative side of a reverse mortgage?

A big downside to reverse mortgages is the loss of home equity. Because you’re not paying down your reverse mortgage balance, you’ll make less profit when you sell, or limit your borrowing power if you need a new loan. You’ll pay high upfront fees.

Do you pay income tax on reverse mortgage?

No, reverse mortgage payments aren’t taxable. Reverse mortgage payments are considered loan proceeds and not income. The lender pays you, the borrower, loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home.

How much money do you really get from a reverse mortgage?

The value of your home is one of the biggest factors in how much you can borrow with a reverse mortgage. Generally speaking, you can usually get somewhere between 40% to 60% of your home’s appraised value. And the higher your home value is, the more money you can potentially access.

Can heirs walk away from reverse mortgage?

After the passing of the last surviving borrower, the reverse mortgage loan balance becomes due and payable. Your heirs can decide whether to repay the loan balance, keep the home, sell the house, and keep the equity, or walk away and let the lender dispose of the property.

How many years is a reverse mortgage for?

The number of years a reverse mortgage lasts can vary widely and depends on your specific situation. For example, if you took out a reverse mortgage as soon as you became eligible at age 60 and lived an average life remaining comfortably in your home, you may enjoy the benefits for about 18 years.

Can you have 2 reverse mortgages?

No. Borrowers can only have one existing reverse mortgage at a time. However, borrowers who have paid off a reverse mortgage can get another reverse mortgage. And borrowers with an existing reverse mortgage can refinance the reverse mortgage to another one.

Can a reverse mortgage be more than house is worth?

No, a reverse mortgage cannot exceed the value of the house. This is because the borrower cannot owe more than the value of the house when the loan becomes due and the house is sold. If the value of the house declines and the loan balance becomes greater than the value of the house, the borrower is not liable for the difference.

Who Cannot get a reverse mortgage?

Not everyone is eligible for a reverse mortgage. Here are some of the people who are not eligible:

  • People under the age of 60
  • People who do not own their home outright or who have a very low mortgage balance
  • People who have excessive equity in their home (more than 50 percent)
  • People who do not live in their home as their primary residence
  • People who have a history of bankruptcy or foreclosure
  • People who are in arrears on property taxes or homeowner’s insurance.

Even if you meet all the basic requirements, you may not be approved for a reverse mortgage if the lending institution determines that it is not a good financial fit for you.
If you are interested in learning more about reverse mortgages, I recommend that you talk to a qualified financial advisor. They can help you assess your individual needs and determine whether a reverse mortgage is right for you.

What are three major requirements to qualify for a reverse mortgage?

The three major requirements to qualify for a reverse mortgage are:

  • Be 62 years of age or older. Reverse mortgages are designed to help seniors access the equity in their homes to supplement their retirement income;
  • Own your home outright or have a small mortgage balance. You can use the proceeds from the reverse mortgage to pay off your existing mortgage balance.
  • Occupy the home as your primary residence. Reverse mortgages are only available for primary residences.

In addition to these three major requirements, there may be other requirements that you need to meet depending on the lender and the type of reverse mortgage you choose.

How much income do you need to get a reverse mortgage?

There is no income requirement for a reverse mortgage. Reverse mortgages are designed to allow homeowners aged 60 and over to access the equity in their homes without having to make monthly mortgage payments. The amount of money you can borrow is based on your age, home value, and current interest rates.

Which type of property is ineligible for a reverse mortgage?

The following types of properties are ineligible for a reverse mortgage:

  • Investment properties
  • Vacation homes
  • Commercial properties
  • Properties with more than four units
  • Properties that are not the borrower’s primary residence
  • Properties that are in need of major repairs
  • Properties that are subject to a lien or other encumbrance

Here are some examples of ineligible properties:

  • A rental property that you own but do not live in
  • A vacation home that you use for family vacations
  • A commercial property that you use for your business
  • A fourplex apartment building
  • A property that is in foreclosure
  • A property that has a significant amount of damage and needs to be repaired
  • A property that has a second mortgage or other lien on it

If you are unsure whether your property is eligible for a reverse mortgage, you should speak with a qualified financial advisor. They can help you determine if you meet all of the requirements and if a reverse mortgage is the right financial product for you.

Do you get all the money at once with a reverse mortgage?

No, with the life mortgage loan you do not get all the money at once. The loan is disbursed in one lump sum, but the applicant can choose to receive only a portion of the principal, while the rest is disbursed in periodic, annual or semi-annual installments. In this way, the applicant can have an immediate amount of money for his or her needs, without having to give up the possibility of continuing to live in his or her own home.
Specifically, Italian law stipulates that the applicant can receive up to 70 percent of the value of the property in one lump sum, while the remaining 30 percent must be disbursed in semi-annual or annual installments, starting from the second year of amortization.

Can I inherit a house with a reverse mortgage?

Yes, it is possible to inherit a house with a reverse mortgage. In this case, the heirs will be required to repay the loan to the bank within 12 months after the death of the borrower.

There are two options for heirs:

  • Pay off the loan in a lump sum. In this case, the heirs will have to pay the bank the full amount of the loan, including principal and accrued interest.
  • Sell the property. In this case, the heirs will have to sell the property and use the proceeds to repay the loan to the bank. If the sale price is higher than the debt, the excess will be returned to the heirs.

If the heirs do not repay the loan within 12 months after the death of the borrower, the bank may initiate procedures for forced sale of the property.

Do you lose ownership with a reverse mortgage?

No, with a reverse morrgage you do not lose ownership of the property. In fact, the loan applicant remains the owner of the property and has the right to continue living there until his or her death. The lending institution granting the loan has only a security interest in the property, which is registered as a first mortgage. In case of non-payment of the loan, the lending institution may proceed to sell the property to recover the amounts owed, but the applicant still has the right to live in the property until his death.

Why is it so hard to get a reverse mortgage?

There are several reasons why it is so difficult to obtain a reverse mortgage in Italy.

  • The risk to the lender is high. A reverse mortgage is a long-term loan that lasts for the lifetime of the applicant. This means that the lender has a higher risk of not recovering its loan. If the applicant dies, the property is sold to repay the loan, but if the value of the property is less than the debt, the creditor remains unsatisfied.
  • Risk assessment is complex. The lender must evaluate several factors to determine the risk of a reverse mortgage, including the age of the applicant, the health of the applicant, the value of the property, and the applicant’s financial situation. This evaluation process can be complex and time-consuming.
  • There is little competition. Reverse mortgages are a relatively new financial product in Italy. This means there is little competition among lenders, and lenders have less incentive to offer this type of loan.

Here are some factors that can increase the chances of obtaining a reverse mortgage:

  • Age of the applicant. Lenders prefer to grant reverse mortgages to people over the age of 65.
  • Health of the applicant. Lenders prefer to grant reverse mortgages to people in good health.
  • Value of the property. The value of the property must be sufficient to secure the loan.
  • Financial situation of the applicant. The applicant must have a good financial situation to be able to repay the loan.

It is important to remember that the reverse mortgage is a very complex financial product and the decision to apply for it must be made with caution.

Can a 95 year old get a reverse mortgage?

In principle, yes, a 95-year-old elderly person can obtain a reverse mortgage. Italian law does not set a maximum age limit for granting this type of loan. However, practice shows that lenders are more likely to grant reverse mortgages to people under the age of 90.

Why opt for a lifetime mortgage loan?

This type of financing allows homeowners to obtain credit by using their home as collateral. It is called “lifetime” because it lasts until the death of the borrower, starting from the signing of the contract until the borrower’s passing.

Before death, banks are not required to demand repayment of the debt, except for the interest and fees portion. If the borrower chooses not to capitalize the repayment, the lender can terminate the contract in case of installment payments of expenses and interest, up to 7 times even non-consecutive.

Currently, PVI is considered advantageous because people can access it from the age of 60 (65 for some banks), thus having more time to take advantage of the financing. One of its advantages is that ownership of the property is not transferred to the bank. Those who obtain a PVI can continue to live in their property. If the heirs decide to sell the property and the proceeds do not cover the loan amount, lenders cannot demand any payments from them.

Final considerations

Also notoriously known as a “reverse mortgage,” the PVI is a middle ground between a mortgage and a personal loan, allowing the applicant to obtain an amount of money without having to pay any installment or interest for the duration of his or her lifetime.

The lifetime mortgage loan represents a financial solution that can offer financial relief to elderly individuals in property ownership, allowing them to meet any unexpected expenses or simply improve their quality of life during their retirement years.

However, it is critical to have a clear understanding of the legal and financial implications associated with this type of loan, so it is always advisable to consult a professional in the field before proceeding.

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