LOCKED-UP WEALTH
If you’ve been a property owner in Spain for a few years, you’ll have seen your home increase in value by a significant amount. Property that was valued at €250,000 five years ago could now be valued at well over €500,000, which means that the owner’s wealth has increased by €250,000. The problem is, however, that this increase in wealth is in a format that can’t be easily accessed. The money is actually locked up in the property and effectively does nothing for the owner.

USING THIS WEALTH
If this wealth wasn’t locked up, it could be accessed and invested to produce extra income in retirement. The capital itself could be used for things like refurbishing the kitchen, garden or pool. Alternatively it could provide a new car or an extra holiday, a cruise or other special events such as Golden Weddings. The question therefore is “Can it be done? Can equity be released from Spanish property and how?”

REVERSE MORTGAGES
This is exactly what the name implies – the opposite of a normal mortgage. Instead of paying money to a bank or other lending institution over a number of years, after which you own your home outright, you start with owning your home outright and get it to pay you an income for life. The way it works is this:
Firstly you find a bank that will take your house as security for a loan of, say, 80% of its current market value. You borrow the money in a low interest-bearing currency such as the Swiss Franc. Then you take that capital and invest it to produce an annual return greater than the loan interest rate. From the annual income, you pay off the interest due on the loan and keep the surplus for yourself.
In some cases, you can even take in cash up to 25% of the amount borrowed and use it for whatever purpose you want and the remaining 75% which is invested, still generates enough income to pay the loan interest and also give an additional income.

EXAMPLE
You have a property in Spain valued at €500,000 that you own outright. You borrow €400,000 in Swiss Francs (at an interest rate of 2.5%) out of which you keep €50,000 in cash to buy a new car and to pay for your Golden Wedding celebrations. The balance of €350,000 is invested to give an annual return of 7%. Your annual costs are 2.5% x €400,000 = €10,000 and your annual income is 7% x €350,000 = €24,500. This means you cover the interest costs on the entire loan and still have an annual income of €14,500 to add to your existing retirement income.

SPANISH INHERITANCE TAX
A properly registered debt against a Spanish property reduces the assessable value of the property for Spanish IHT purposes by the amount of the debt. In many cases this can reduce a person’s liability to IHT on the Spanish property by over 95%.

EQUITY RELEASE SPECIALISTS
Offshore Money Managers has been arranging such financing in Spain for several years to the complete satisfaction of clients. Contact us directly or through one of our Professional Introducers for further details.

Article Submitted by: Offshore Money Managers
Offshore Money Managers Correduría de Seguros S.L. (OMM) is an independent firm of insurance brokers dealing exclusively with the retired expatriate market in Spain in the areas of offshore investment.

OMM is regulated by the Dirección General de Seguros in Madrid with licence number J-2126. Our head office is located in Marbella on the Costa del Sol and we have Appointed Representatives covering all the major expatriate centres.

Visit OMM's website at www.offshoremoneymanagers.net for further information