Mortgage loan is not a financing solution born in Italy, it was conceived in Great Britain: it is here, in fact, that they were proposed for the first time in the late 90s of the last century, as equity release or as lifetime mortgage.
Since they appeared, lifetime mortgage loans have expanded and spread to other parts of the world: initially only in Anglo-Saxon contexts (in Canada, the United States, Australia and so on), then also by us.
In particular, in Italy the mortgage lifetime loan was introduced starting from December 2005 through the decree law number 203 of 2005: the rules define this loan as a loan granted by a credit institution, by a company or by a medium or long term financial intermediary; annual capitalization of expenses and interest and full reimbursement at maturity are envisaged, in a single solution. This loan requires a first degree mortgage on a residential property.
The mortgage loan is a particular loan, precisely for this reason, even if they are accompanied by the guarantee through the registration of a mortgage of the home, they are not considered in the list of mortgages.
Two are the most important peculiarities that characterize this type of financing:
Regarding this second aspect, the repayment of the lifetime loan must not be made by the borrower, but by his eventual heirs; however, there is the possibility that it is the borrower himself who decides to pay off the loan himself by taking on himself the burden of repayment of the principal, but also of the early repayment penalty and the interest accrued.
In fact, these mortgage loans are requested by people over the years who have no intention of thinking about their repayment: when they die, it’s up to their heirs to decide whether to let the property be taken out by the bank, which will then sell it, o repay the capital lent in a one-off solution, including interest that has accrued over the years.
The lifetime mortgage loan is essentially a long-term mortgage loan. The formula provides that there are no reimbursements of any kind to be made, until the contractor’s death, not even as regards interest; in the event that the loan is co-registered, for example to a married couple of 70 years, the death of the longest-living spouse is taken into consideration, that is, the one who dies later.
Both interest and expenses are capitalized and must be repaid on maturity; it is up to the heirs to provide, unless the subscriber himself undertakes a voluntary early repayment.
As you can see, therefore, there are no installments to be paid. Sometimes, the mortgage life loan can be accompanied by that clause which in the Anglo-Saxon world is defined as “no negative equity guarantee”, that is, a clause of the contract by virtue of which the value of the debt borne by the heirs is limited to the realizable value. of the real estate that is granted as collateral. In this circumstance, it is up to the financial company to take the debt which possibly exceeds and there can be no recourse to the heirs, provided that the property is sold through an independent curator and by establishing a market price. In the absence of heirs, the sale of the property leads to the extinction of the loan after twelve months from the due date.
Among the advantages of the mortgage lifetime loan, it should be emphasized that they are safely regulated by regulations.
The loan has an amount that usually ranges between 15% and 50% of the sum which corresponds to the value of the real estate property and – in fact – varies according to the age of the borrower: to establish the value of the house is, in general, an appraisal that is carried out by a special appraiser who is reported by the credit institution.
Upon the death of the applicant, the heirs must deal with the reimbursement within a year: therefore, in the event of an unexpected death, they have plenty of time to organize themselves without haste.
It is worthwhile, at this point, to consider the pros and cons of the mortgage loan, which – to tell the truth – has some not very advantageous aspects.
This practice, in fact, must be considered not convenient from an economic point of view as it legalizes the so-called bank anatocism, i.e. the accrual of interest on interest : a practice so discussed that, not surprisingly, it is prohibited for all the others forms of loan as it is considered too burdensome. Due to the anatocism, the capital to be repaid will increase almost exponentially.
To this it is necessary to add the fact that the interest rates that are applied are higher than those provided for mortgages, even though they are comparable to those of personal loans having an APR around 4.50% ; it must be considered, however, that the borrower is also responsible for the foreseen taxes and expenses for the notary and therefore for all the costs associated with the registration of a mortgage.
Another element that should be considered is that the percentage of money that can be obtained changes according to the age of the applicant, a bit like in the case of bare ownership: in essence, with the increase of the years of those who want the loan rates increase. If a 65 year old could receive a 10% share, a 90 year old could be entitled to up to 50%.
In conclusion, before applying for a mortgage loan it is advisable to carefully evaluate the pros and cons of this financing formula, still not widespread not only because it has recently been introduced in our country (it is just over ten years old), but also because it has some disadvantageous factors that cannot be underestimated.