We answer your frequently asked questions about equity release in Spain – how to release the value of your home now.
What is Equity Release?
This relatively new financial concept is a way of enabling homeowners to unlock some of the capital tied up in a Spanish property that has increased in value since they bought it.
Say for example Mr Adamson bought a villa in Marbella in 1970 for €100,000 – he may now find himself having paid off the mortgage and owning a villa now worth €400,000.
Perhaps he has now retired and has virtually no income – yet he owns a property worth €400000.
Releasing the equity from his Spanish property means he can enjoy spending part of the €400000 now while he is alive – instead of living frugally and passing on the property to his relatives who inevitably will have to pay a large inheritance tax when they come to sell it upon his death.
Some residents of Spain may actually need equity release to get an income upon which they need to survive given that inflation has meant food and utility prices in Spain have risen sharply – while savings rates have plunged with the economic crisis.
Releasing the Capital
Many pensioners and retirees in Spain are equity rich but capital poor – selling their home is not an option – for where are they going to live?
Unless of course they downsize – that is a good way to release the equity in your home in Spain but that may not always be practical – and anyway – many people love and cherish their homes and do not want to move – but they require additional income.
Equity release enables them to invest in a financial product that generates an extra income without selling or moving home.
In return for receiving the equity – the lender takes the appropriate stake in the property i.e. it may then own 50% of the property and then be entitled to 50% of the proceeds whenever the house is sold – a nice earner if house prices continue to rise.
Homeowners can usually decide to receive the equity released from their home either in the form of a regualar income, a cash lump sum or as a mixture of both.
Reverse Mortgages (Hipoteca Inversa)
In Spain you can take out a hipoteca inversa, also known in English as a reverse mortgage.
This is a common form of equity release enabling homeowners to borrow money against the value of their home.
With the property used as collateral, lenders such as the major Spanish banks are happy that their loan is secured on a stable and tangible asset – note that reverse mortgages are generally aimed only at retired homeowners of 65 years or over.
Upon death – when the house is sold part of the proceeds go back to the lender.
