During his television special ‘Prevention and Action’, which is broadcast from the Casa de Nariño (Presidential Palace), the President of Colombia Iván Duque announced the legalization and launch of ‘Hipoteca Inversa’, or reverse mortgages; a financial instrument already popular in other countries such as the United States.
“A measure that has been successful in many parts of the world and that we now bring to our country as one more tool to protect those people who have worked so hard and who have worked so hard, for our country,” said Duque.
Reverse mortgages will be provided to consumers through financial institutions such as banks.
The new program is aimed at people over 65 who are homeowners and want to have a complementary income. With this new mechanism, they will be able to mortgage their property in exchange for a monthly lifetime income. Housing Minister Jonathan Malagón stressed that with the reverse mortgage, applicants will be able to secure their financial support during old age.
Reverse mortgages allow a homeowner to make an arrangement with a financial institution where typically they receive a monthly payment for the rest of their lives in exchange for a security interest in their home.
Upon the death of the homeowner, the heirs can pay off the mortgage debt with their resources, selling the property and paying the corresponding percentage or handing over the property as payment for the rent that their relative received.
The government pointed out that the instrument manages three types of income, depending on the needs of those who decide to use it: life annuity, which consists of a monthly payment until the person dies. Temporary income, which is the destination of a monthly value for a certain number of years, and the single income, in which the entire value is received in a single installment.
The value of the monthly payment depends on several factors, such as the appraisal of the home, the age of the applicants for the product and the selected reverse mortgage modality. Regarding age, in the Colombian implementation both the applicant and the beneficiaries must be over 65 years of age.
Rural home photo in Santandercito, Cundinamarca © Loren Moss