Colombia to Debut Reverse-Mortgage Regulations in 2nd-Half 2020
Colombia President Ivan Duque and Colombia Housing Minister Jonathan Malagón jointly announced June 12 in a nationally televised address that reverse mortgages will become legal here following regulations scheduled for publication in second-half 2020.
While reverse mortgages are common in North America and elsewhere – mainly enabling retired persons to generate an alternative source of retirement funds – such mortgages don’t yet exist in Colombia.
The new regulations will restrict reverse mortgages to persons 65 years and older, enabling homeowners to receive monthly payments or else one-time cash outlays.
“In this program, financial entities [will] acquire the home and pay a monthly [or a one-time] amount to the owners, but the owners of the property continue to inhabit it until the last day of their life,” according to the Housing Ministry.
Homeowners will have to negotiate terms of such mortgages with financial entities, according to the Ministry. Both the applicant and the beneficiaries must be over 65 years of age.
Three types of income would result, according to the Ministry:
1. A life annuity, which consists of a monthly payment until the person dies;.
2. Temporary income, pays a monthly value for a certain number of years; and
3. Single income, in which the entire value of the home is paid in a single installment.
“The value of the monthly amount will depend on several factors, such as the appraisal of the home, the age of the applicants and the selected reverse mortgage modality,” according to the Ministry.
A hypothetical example cited by the Ministry would involve a 75-year-old wife and her 70-year-old husband, who have a home valued at COP$200 million (US$53,000).
According to this example, the couple might receive a monthly annuity of COP$800,000 (US$213) for the rest of their lives.
At the death of the mortgagor, “the heirs can pay off the mortgage debt with their resources, or sell the property and pay-off the corresponding debt, or deliver the property [to the mortgagee] as payment for the funds that their relative received from the reverse mortgage,” according to the Ministry.
