On 23. January 2011, we described the benefits of using a reverse or reverse mortgage to supplement retirement income for owners of attractive, owner-occupied properties. Since the number of providers in Germany (unlike in the USA or the UK) is still relatively limited, we looked around for an alternative. After checking with HypoVereinsbank, this simple solution offers itself:
You order a normal mortgage on your property. M indimum sum: 25.000 € and minimum repayment 1% p. a., At prevailing real estate rates (currently approx. 4 %). With currently favorable interest rate, you should sensibly agree on a longer term. Officially, the bank requires an existing retirement income from which you "can service this mortgage", so something like 1.200 € per month. That you then serve this from the new total income mix is probably reality.
Example with the following assumptions:
1. Current retirement income = 1.200€/month or 14.400€ p. a.
2. Current age = 75 years (statistical remaining life expectancy ca. 5 years).
3. New mortgage to be taken out = 25.000 € for supplementary retirement financing for 5 years (=> 5.000 € per year). In the first year, after withdrawing 5.000 € the rest (= 20.000 €) as a fixed deposit for one year and use this interest in the following year additionally. In the following year you withdraw again 5.000 and invest the other 15.000 € again as a fixed deposit, u. s. w.. Possibly your bank also offers you annual and smaller, staggered mortgages.
From this: (amortization 1% p. a.) = 250 € p. a. + (interest rate = 4 % p. a.) = 1.000 € p. a. => in total 1.250 € p. a. back to the bank (1% repayment is yours, however) and 3.750 € p. a. to supplement your pension (=> 312,50 € per month).
Advantage and disadvantage : At first sight, not the very best deal, but if you don't want to bequeath everything, it's good enough and helps you "make life before death" a little bit better. The heirs (often selfishly pronounced) will not be so entirely happy, but probably happy enough, because after your demise, the property is still inherited – minus this mortgage(s).
Remarks : The "income" from this mortgage is of course tax free. The income from fixed deposit does not (note allowance!).
This type of financing is not recommended for retirees who are too young, rather for a "manageable remaining life span".
The amount of the mortgage can be significantly larger if you have an additional guarantor, for example your later heirs.
Note: If necessary, let this basic model be modified by your own, resp. calculate different banks and make individual proposals (z. B. regarding the amount of the mortgage, as well as the annual undrawn fixed deposit). There is certainly bank-related scope for creativity and optimization!