On 1 March 2016, the decree of the Minister of Economic Development dated 22 December 2015 came into force. 226, which implements the new rules concerning the life annuity mortgage, a particular type of loan reserved for elderly subjects. This is a loan that had already appeared in previous years on the credit market, indeed presenting a series of problems that had decreed it a rapid decline: with this decree, the State tries to revitalize a mode of payment that could be useful to pensioners and in general to elderly subjects who need liquidity. Here, however, we want to analyze the risks of financing, starting first of all from a general examination of the functioning of the mortgage life loan.
How does it work
What is a lifetime mortgage loan in detail? This is a particular form of financing that owes its origin and fortune to the Anglo-Saxon world, where it is known as reverse mortgage and subsequently imported here in Italy. This is a loan that can be granted to individuals who are at least 60 years of age, with no maximum age limit as opposed to other formulas such as the salary assignment : the only condition is that these subjects offer the mortgage on a property as collateral. not burdened by other mortgage registrations. It is therefore a structured loan designed specifically to meet the financial needs of the elderly population, thanks to which the subject is granted a loan in exchange for the registration of a mortgage on the house he owns, which therefore the beneficiary is not forced to to sell, being able to continue to live there quietly.
If the ones just described are the general lines of the mortgage life loan, we will go into detail as regards the amortization plan, when the repayment of the disbursed capital and the interest is taken over, in whole or in part, by the heirs of the debtor after the death of the person. What happens when the heirs of the deceased refuse to take on the debt contracted by the subject? In this case the credit institution can sell the property covering the sum paid and the interest due with the proceeds, and returning any excess to the heirs. The amount that can be granted with the life annuity loan varies depending on the value of the property granted in the mortgage and also on the age of the borrower: generally the figure is between 15 and 50 percent of the value of the property and appears to be as much higher in proportion to the value of the property and the more advanced the age of the borrower.
Banking life loan: the risks and disadvantages
The new rules issued by the government decree do not cancel the risks and criticalities inherent in the life annuity loan. From the perspective of the beneficiary and his heirs, the main perplexity is given by the exponential growth of the debt, due to the annual capitalization of the interests on the sum disbursed, all the more when there is a long life expectancy: according to experts in the sector, such a mechanism is able to quickly dry up the entire value of the property offered as a guarantee.
Furthermore the house subject to mortgage is not salable, it cannot be further mortgaged and it is not even possible to lease it to third parties: the legislation in fact establishes the so-called forfeiture of the benefit of the term, or the bank can declare the contract terminated and demand the immediate repayment of capital and interest.
Fortunately, the law protects heirs from the risk of having to cover up any shortfall in debt coverage through the proceeds of the sale: the rule in fact requires that the amount of debt to be repaid to the bank can never exceed the realizable value of the property, therefore if the heirs do not redeem the mortgaged property, and the credit institution must sell to get the capital back, the former cannot be called to pay the difference if the proceeds are not sufficient to cover the credit of the bank.