Reverse mortgage – is it really worth it?

An example is a reverse mortgage, which can be a source of additional income for Polish seniors. In our country there are no provisions regulating an inverted mortgage, currently, the Ministry of Finance is working on a draft of such a law.

Reverse mortgage principle


However, entities offering similar mechanisms are already on the market. This concept, as the name suggests, is based on the reverse mortgage principle. Under a reverse mortgage contract, the financial institution undertakes to pay a specified amount to the other party, which in return waives its right to property after death.

This solution is to be targeted mainly at lonely seniors who have no one to leave their flat or house. Payments themselves can take different forms – e.g. regular monthly installments or a one-off payment of the entire sum.

It should be noted, however, that the amount of benefit received depends on two factors – the value of the property itself and the age of the people applying for it. The average life expectancy of women is, therefore, higher, and they can expect lower pay than men.

High-value real estate in attractive locations


The idea itself seems to be a good solution for older people, who often have high-value real estate in attractive locations. Thanks to the reverse mortgage, they can take advantage of this situation and improve their living conditions when they are retired.

This is especially important at a time when spending on medical care and medicine increases significantly. However, it is also worth looking at the other side of the coin.

It must be remembered that financial institutions offering such solutions are profit-oriented. In this case, the whole system is based on the difference between the real value of the property and the amount that is paid to their owners.

A senior who decides to take such a step must take into account the fact that he will receive only a certain part of the value of his property. Most often the range is from 70% to even only 30% of its value.

Before signing the contract


Therefore, before signing the contract, it is worth considering whether the property has been properly valued first and whether this exit is most advantageous.

From a purely financial point of view, simply selling your property and renting another can be more profitable. In this case, the senior will be able to freely use the entire amount of the equivalent property.