Senior loans are often described as a shortcut to extra income and an opportunity to give yourself a better pension. It can be an attractive alternative especially as it becomes more difficult to get a regular bank loan the older you are. But what types of senior loans are on the market today and what should you think about?
Senior loans are expensive loans
In general, it can be said that senior loans are expensive loans, the interest rates are normally about 2-3 percentage points higher than ordinary loans. This means you can lose a lot of money on taking a senior loan compared to a regular loan. The senior loan can also affect your housing allowance, for example if you take out the senior loan as a lump sum then it is counted as an asset and in this way can reduce your housing allowance or cause your housing allowance to end completely. It is therefore important that you find out what type of senior loan you are taking and how it may affect a housing supplement.
Do not borrow more than you need
In some cases, you are encouraged to borrow more than you really need. Senior borrowing for speculation is not a good idea. If the money you borrow is invested in shares or funds, then you need to be able to get a high return on the money to offset the high loan interest rate (or the high insurance premiums, depending on the type of senior loan you take) .
One thing I would also like to note is that in some cases, an old loan is redeemed with the new senior loan. The effect of this is that you redeem a loan that has a low interest rate with a loan that has a higher interest rate. That way, it becomes more expensive for you as a customer.
Find out what applies
The most important thing is that you find out exactly what applies. How much, in kronor and penny, will the senior loan cost you in the 5, 10 or 20 years term? The debt is rising rapidly and how much the home is worth in the long run you cannot know. In the worst case, it can end with the debt exceeding the value of the home. When the loan expires, perhaps after 10 years, and the home is sold, the borrower or the estate must in such case use other assets to redeem the loan.
Consider other options
- Check if there is an opportunity to take a regular bank loan
Senior loans are offered today from the age of 58 or 60 or completely without an age limit and provide an opportunity to borrow without ongoing interest payments. Instead, an ordinary bank loan requires the borrower to be able to pay interest on an ongoing basis but becomes considerably cheaper in the long run. It may therefore be a good idea to compare the terms of several loan institutions and also check if any bank can offer a regular mortgage loan. This is especially true if someone in the household still has a working income.
- Sell the property and move to something cheaper
With a senior loan, you can use an otherwise locked savings capital, the value of your home, and still stay. Consider whether it might be an alternative to sell the home and move to something cheaper instead. You can then use some of the profits to strengthen your finances.
- Borrow through the children with the housing as collateral
If you have children who have a stable economy (and for that matter have good contact with your children), then the children can borrow money with your accommodation as collateral. The money can then be lent to the parent against the reverse where the amount and interest are the same as the bank loan. This arrangement requires some administration and the opportunity to pay interest on an ongoing basis, but involves significant savings.
Finally, I would say that senior loans can basically be a good idea for those who have values in their homes, what I question is the price of the solutions available on the market today.