Bare Ownership vs Reverse Mortgage: Which Is Right for You?
Bare Ownership vs Reverse Mortgage: Which Is Right for You?
When a senior homeowner wants to access the equity in their property while continuing to live there, two main options emerge: bare ownership (nuda propiedad) and reverse mortgage (hipoteca inversa). Both allow you to monetise your real estate wealth, but they work in fundamentally different ways. This comprehensive comparison will help you decide which option best fits your situation.
What Is Bare Ownership?
Bare ownership involves selling the title of your property while retaining the right to live in it (usufruct) for life. You receive a lump sum payment, a monthly income, or a combination of both.
Key features:
- It’s a sale, not a loan
- You receive money without generating any debt
- You continue living in your home as the usufructuary
- The transaction is irrevocable
- You maintain full legal protection under the Spanish Civil Code
What Is a Reverse Mortgage?
A reverse mortgage is a mortgage loan designed for people over 65. The bank lends you money using your property as collateral. You don’t have to repay the loan while you live, but the debt (principal + interest) accumulates over time.
Key features:
- It’s a loan with mortgage guarantee
- You receive money as a monthly annuity, lump sum, or combination
- The debt accumulates with compound interest
- Upon death, heirs must repay the debt or surrender the property
- You remain the full owner of the property
Detailed Comparison Table
| Criteria | Bare Ownership | Reverse Mortgage |
|---|---|---|
| Nature | Sale of property title | Mortgage loan |
| Debt generated | None | Yes (growing over time) |
| Impact on heirs | Property already transferred | Heirs inherit the debt |
| Amount received | 30–60% of property value | 15–35% of property value |
| Payment method | Lump sum, annuity, or combination | Usually monthly annuity |
| Interest charges | None | 5–7% compound interest |
| Right to stay | Life usufruct (registered) | Contractual right |
| Legal protection | Very high (Land Registry) | Moderate (contract) |
| Property maintenance | Usufructuary pays | Owner pays |
| Available providers | Specialised companies | Banks (very few) |
| Minimum age | Usually 65+ | Legally 65+ |
| Reversibility | No (sale is final) | Technically yes (repay loan) |
| Regulation | Civil Code | Banking law (Law 41/2007) |
Financial Comparison: A Real Example
Let’s compare both options for the same property and homeowner:
Scenario: María, 75 years old, owns a property in Madrid valued at €300,000.
Option A: Bare Ownership
| Item | Amount |
|---|---|
| Property value | €300,000 |
| Usufruct value (14%) | €42,000 |
| Bare ownership value (86%) | €258,000 |
| Market price paid | €180,000 |
| Monthly equivalent (15 years) | €1,000/month |
| Debt generated | €0 |
| Impact on heirs | Property transferred; usufruct protected |
Option B: Reverse Mortgage
| Item | Amount |
|---|---|
| Property value | €300,000 |
| Loan percentage (max) | 30% |
| Initial amount available | €90,000 |
| Monthly annuity (15 years) | €500/month |
| Interest rate | 6% compound |
| Accumulated debt (15 years) | €215,000 |
| Remaining equity for heirs | €85,000 (300K – 215K) |
Key Differences in This Example
- María receives €180,000 with bare ownership vs €90,000 with the reverse mortgage — double the amount
- With bare ownership, there is no debt — with the reverse mortgage, the debt grows to €215,000
- With bare ownership, heirs know the situation upfront. With the reverse mortgage, heirs face an uncertain debt that may exceed the property’s value
Advantages of Bare Ownership Over Reverse Mortgage
1. More Money Received
Bare ownership typically provides 2–3 times more liquidity than a reverse mortgage for the same property. The buyer pays a fair market price for the bare ownership share, while banks lend conservatively (usually 25–35% of value).
2. No Debt, No Interest
This is the most critical difference. Bare ownership generates zero debt. With a reverse mortgage, compound interest can cause the debt to snowball:
| Year | Debt with Reverse Mortgage (6% interest) |
|---|---|
| Year 0 | €90,000 |
| Year 5 | €120,000 |
| Year 10 | €161,000 |
| Year 15 | €215,000 |
| Year 20 | €288,000 |
After 20 years, the debt nearly equals the property value. With bare ownership: the debt is always €0.
3. Better Protection for Heirs
With bare ownership:
- Heirs know exactly what to expect — the property has been sold
- There are no unpleasant surprises or hidden debts
- Any remaining assets are distributed cleanly
With a reverse mortgage:
- Heirs inherit a debt that may exceed the property’s value
- They must decide whether to repay the loan or surrender the property within months
- The emotional and financial burden can be significant
4. Stronger Legal Protections
The life usufruct in bare ownership is:
- A real right (derecho real) registered in the Land Registry
- Enforceable against any third party, including future buyers
- Protected by the Civil Code, not just a contractual clause
- Cannot be revoked by any party
The reverse mortgage protection is:
- Based on a contractual agreement with the bank
- Subject to banking regulations that may change
- Potentially vulnerable if the bank changes ownership or policy
5. Greater Availability
Reverse mortgages are offered by very few banks in Spain, and the conditions are often restrictive:
- High interest rates (5–7%)
- Low loan-to-value ratios (25–35%)
- Complex documentation requirements
- Limited to properties in major cities
Bare ownership is available through specialised companies like NudaPropiedad, with transparent terms and broader geographical coverage.
When Is a Reverse Mortgage Better?
Despite its disadvantages, a reverse mortgage may be preferable in some specific situations:
You Want to Keep Full Ownership
If it’s important to you to remain the legal owner of your property (not just the usufructuary), the reverse mortgage allows this. Some people have a strong emotional attachment to ownership that goes beyond the practical right to live in the home.
You Expect to Need the Home for a Short Period
If you plan to move to a care home within a few years, a reverse mortgage might make sense because you can sell the property, repay the loan, and keep any remaining equity.
Your Heirs Want to Keep the Property
If your heirs specifically want to inherit the property and have the financial means to repay the mortgage debt, a reverse mortgage preserves this option (though at a significant cost).
When Is Bare Ownership Better?
You Want Maximum Liquidity Now
Bare ownership provides significantly more money upfront, which is crucial if you need funds for medical care, home improvements, or quality of life enhancements.
You Want Zero Debt
If the idea of accumulating debt — even debt you don’t have to repay personally — makes you uncomfortable, bare ownership is the clear choice.
You Prioritise Legal Security
The registered life usufruct provides the strongest legal protection available under Spanish law. Your right to live in your home is bulletproof.
You Care About Your Heirs’ Burden
Bare ownership creates a clean situation for your heirs. No debts to negotiate, no pressure to sell, no unpleasant financial surprises.
You Want Simplicity
Bare ownership is a single, clean transaction. There are no ongoing interest calculations, no bank reviews, no complex financial instruments to track.
Common Concerns Addressed
”Am I giving away my house?”
No. You are selling the bare ownership at a fair market price while keeping the right to live there for life. It’s a financial transaction, not a gift.
”What if I change my mind?”
Bare ownership sales are irrevocable, just like any property sale. However, your usufruct (right to live in the home) is also irrevocable and cannot be taken away.
”What happens if I need to move to a care home?”
Your usufruct allows you to rent the property and use the income to pay for care. This is a significant advantage that provides financial flexibility.
”Will the buyer pressure me to leave?”
No. Your usufruct is a legally protected real right. The buyer has no means to pressure or evict you. This is ensured by law, not just by contract.
Our Recommendation
For most seniors aged 65 and over, bare ownership is the better choice. It provides:
- More money (2–3× more than a reverse mortgage)
- Zero debt
- Stronger legal protection
- Simpler process
- Better outcome for heirs
The only scenarios where a reverse mortgage might be preferable are when maintaining full legal ownership is a priority, or when heirs have specific plans to repurchase the property.
Next Steps
Want to explore whether bare ownership is right for you?
- Learn more: read our complete guide to bare ownership
- Understand the process: see how it works
- Get a free valuation: contact us for a no-obligation assessment of your property
- Browse properties: if you’re an investor, check our available properties
At NudaPropiedad, we provide transparent, professional guidance at every step. Our team of legal and real estate experts ensures both sellers and buyers are fully protected.
Want to learn more?
We provide free, no-obligation advice on bare ownership.
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