About enjoying an old age in Spain we have already extensively extolled on these pages. But you don’t have to be past retirement age to buy a second home on the costas. More to the point: with some creativity, you can use capital from your individual pension commitment to finance your Spanish dream home. In this ultimate guide, we explain how, elaborate on the pros and cons of this method, and provide some concrete benefits.
What is the individual pension commitment?
The guaranteed pension for the self-employed is not a greasy prize. Even those who do not have a hole in their hand the size of Belgium’s budget deficit realize that. Shrewd independents and business leaders are therefore building their own fringe benefits. This is the so-called second pillar of retirement.
By parking money with an insurance company, you ensure that after their active career, you do not sacrifice anything on your standard of living. Additional advantage: those premiums are 100 percent tax deductible. At retirement, you receive the money set aside, supplemented by a profit interest.
One such option is the Individual Pension Commitment, or I.P.T. In Flemish vernacular, this is called group insurance.
How do I use my individual pension commitment to fund real estate?
Basically, the capital you save through an I.P.T. is released when you effectively retire. But you don’t have to wait at all until retirement to apply the savings. You can request (part of) your pennies before then.
Admittedly, this scheme applies only to real estate investments. So you cannot take a world trip with it, no matter how enticing that idea sounds. Fortunately, the legislation interprets real estate very broadly. It need not involve the purchase of housing. The method is useful for any real estate project. Think about buying, building or renovating a house. But equally from a porch, pool, kitchen or solar panels.
And the good news: this project does not have to be in Belgium. The system of financing is usable anywhere in the European Economic Area (EEA). That is, throughout the European Union, Liechtenstein, Norway and Iceland. So too in Spain.
There are three different possibilities:
In this case, you ask for an advance on the pension capital of your insurance contract without stopping it. You then dispose of a percentage of your saved pennies. Usually, the amount available is about 60 percent of the accumulated pension reserve. Sometimes a little more.
Note that you do pay interest on this advance. You pay these periodically or through a one-time settlement at the end date of your contract. You may also repay the advance early at any time, without charge. For example, if you receive an unexpected sum of money. In that case, you will have the entire pension capital available to you again at the end date.
- You save for your retirement through your professional activity.
- Before you actually put your breadbox away for good, you can call in some of that accumulated capital.
- You can invest that called-up retirement capital in real estate.
In this way, then, this system is a great alternative to the conventional mortgage. You do not take out a loan, but finance a residence with money that already belongs to you. And so you don’t have to wait at all until retirement to enjoy the Spanish sun. Your insurance company is your lender in this case.
The beautiful apartments below on Poniente Beach, Benidorm, also qualify for financing with I.P.T. This coastal town is no longer merely a gathering place for Benidorm Bastards. Nowadays, young and old alike get their money’s worth here. Click through to learn more about this godsend. How can you use your extralegal pension to buy this gem? Ask us for expert advice without obligation.
2. Wed composition
You can already dispose of the final capital of your insurance contract. At the same time, you continue to pay premiums for your fringe benefits. You will also pay interest on the loan. By the end date, you will have built up enough capital with premiums to repay the loan. Often, however, you will need to take out a mortgage.
You use your insurance contract as collateral for a mortgage loan. First, you take out a mortgage privately with the bank. After that, there are two options:
1)Loan with periodic repayment
The death benefit from I.P.T. insurance is pledged to a credit institution.
2)Loan without periodic interest payments
The outstanding balance of the mortgage loan is repaid in full at maturity with the net pension capital.
If your accumulated pension reserve within your insurance contract is quite limited, then pledging is an option for you. Certainly self-employed people at the beginning of their careers often take advantage of it.
What are the conditions associated with an advance from my I.P.T.?
Is there a catch? Yep. Although you should not be afraid of a fatal bite. The conditions associated with this system are logical. For example, you usually cannot withdraw the entire amount saved, but only a percentage. How much depends somewhat on your personal situation. It is usually around 60 to 70 percent of the amount you have already saved.
Please note that this is a complicated construction that often comes with specific conditions depending on your personal situation. It is advisable to be advised by someone who has eaten queso of it. An insurance broker or a real estate expert, for example.
How about this apartment with direct access to the beach in quiet La Vila Joiosa on the Costa Blanca? Here you will enjoy 320 days of sunshine a year. By asking for an advance on your individual pension commitment, you can finance (part) of the asking price, 225,000 euros, without taking on an additional mortgage.
What are the advantages of funding with an individual pension commitment?
>>This is a very flexible form of financing and you have several options for repaying the advance.
>>Compared to a mortgage loan, you pay no notary or appraisal fees, no appraisal, filing, registration or mortgage fees, no reinvestment fee in case of early repayment, and you do not have to purchase additional debt balance insurance.
>>You can combine this advance with a conventional mortgage loan.
>>Enjoy your Spanish home even before you retire. Real estate in Spain constitutes an excellent investment, thanks to low interest rates and stable (rental) prices.
>>Real estate only increases in value. The earlier you are there, the better. By buying your dream home before you retire, you are also doing good financially that way. In almost all cases, the value of the property purchased at retirement is at least as much – if not more – than the anticipated capital of your extralegal pension.
>>It is a way to improve your standard of living without touching your savings and without taking out a heavy loan. Thus, it is an alternative to classic mortgage loan.
>>The system is usable for any real estate project. It does not matter whether it is buying, building, renovating a home, building land, commercial property, office space, garage. Even a kitchen, porch, garden or a set of solar panels qualify.
>>The real estate project may be located in Belgium or elsewhere in the European Economic Area.
>For independent business owners, this is even more interesting. In fact, they can transfer most of their burdens to their company. This allows them to combine the tax benefits of sole ownership with those of an extralegal pension.
What are the disadvantages of funding with an individual pension commitment?
Your insurance company charges you a higher interest rate than the rate of return on the capital saved. That makes sense: they have the necessary paperwork and need to compensate.
In practice, the interest rate is higher than for a conventional mortgage loan. Yet I.P.T. financing often comes out a winner in the reckoning: because you save a lot of costs (see benefits), you save more in the long run. The rate charged is not the only thing you should consider.
That said, this form of financing is not suitable for every case. Especially if your group insurance contains a high guaranteed interest rate, this is an expensive form of financing. And you may be better off choosing a more traditional mortgage loan.
Who doesn’t dream of an apartment, penthouse or villa surrounded by greenery, just minutes from bustling Marbella? With I.P.T. funds, you can finance real estate anywhere in the European Economic Area. So also in sunny Spain. Admit it, that’s not a bad deal. Learn more about this unique project by clicking on the link below.