Reverse mortgages are not new in Singapore – after being discontinued in 2009. Why is it then that it has been brought back to life again in 2021? And how has it been doing so far? If you’re curious to know more about it, read on as we guide you through the world of reverse mortgage.
What Is A Reverse Mortgage?
Many of us are familiar with the term mortgage – you borrow a definite amount of money to purchase your property, while paying back interest over a period of years, depending on your loan tenure. Think of a reverse mortgage as the exact opposite. For reverse mortgages, the bank gives you monthly payouts for the set loan tenure. Of course, as good as it sounds, nothing is free, and owners still have to pay it back. In exchange for the monthly loan payouts, home owners put their homes down as collateral. Taking on a reverse mortgage loan is a great option for the asset-rich, cash-poor elderly.
What Is The DBS Home Equity Income Loan?
Launched in Aug 2021 in collaboration with CPF the DBS Home Equity Income Loan is a market-first financing solution for seniors owning private property in Singapore. It allows seniors to use their fully paid private homes to boost their retirement income by topping up a lump sum into their CPF retirement accounts. These customers then apply to CPF Board to top up their monthly CPF LIFE payouts thereby increasing their existing monthly payouts they would receive till life puts a full stop on them.
How Does The DBS Home Equity Income Loan Work?
Under the DBS Home Equity Income Loan, a fixed interest rate of 2.88% per annum is charged on the loan.
Firstly, after applying for the loan, your home’s equity value is assessed and calculated to help them reach their desired CPF LIFE payouts. They can then apply to borrow that loan amount. Once the loan has been approved, the amount that was requested by the individuals will be topped up to their respective CPF Retirement Accounts. After which, they apply to the CPF Board to increase their CPF LIFE payouts.
Sounds Complicated? No Worries! Here’s An Example By DBS To Make Things Simpler.
Mr and Mrs Lee are looking at increasing their CPF Payouts to fund their living expenses. Their current CPF payout stands at $650 and $450 respectively. However, they would like to increase their payouts to $1300 each, which means that they would need $650 and $850 more respectively. They need to increase their CPF LIFE premiums by $115,000 and $175,000 respectively. Together, they can apply to borrow a total of $290,000.
After their loan has been approved, $115,000 and $175,000 will be used to top up Mr and Mrs Lee’s CPF RetirementAccounts respectively. After which, they can apply with CPF Board to increase their CPF LIFE payouts.
Who Is Eligible To Apply For This Reverse Mortgage Loan?
The DBS Home Equity Income Loan is only available to Singaporeans and Permanent Residents (PR) aged 65 to 79 years old. Your property has to be a fully paid-up private residential property in Singapore to be able to apply for this loan. In addition, if you own a leasehold private property, it has to have at least 30 years left on the lease.
What Is My Maximum Loan Tenure?
The maximum loan tenure can be up to 30 years, or until the youngest borrower reaches 95 years old. Most of the time, you are only eligible for bank loans till age 65 years old as there are fears of one not being able to repay the loan, so this is a great option if you are looking at taking one.
What Are The Advantages Of Taking Of A Reverse Mortgage?
1. You Get To Continue Living In Your Home!
Fret not, even after applying for this loan, you still have ownership of your home. Your home will only be put as collateral till the end of the loan period. So, during this time, you can continue living in your own home!
2. Flexibility To Sell Your Property Anytime
You can sell your property at any time and repay your loan, without incurring any penalties!
3. No Monthly Loan Repayments
Your outstanding loan amount, which includes your principal and accrued interest, is only payable only upon loan maturity.
4. Fixed Monthly Interest Rates For The Whole Loan Tenure
The interest rate charged for your loan will be fixed at 2.88% p.a. for up to a loan period of 30 years. With this, you don’t have to worry about rising interest rates, in times when the market is in an inflationary environment. This makes calculating your final repayment amount a lot easier to project.
5. You Are Able To Receive Higher Monthly Payouts From The Reverse Mortgage
In comparison to receiving solely monthly payouts from CPF, by taking on this loan, you will receive higher payouts as equity value of your home is also considered. For individuals or couples who want to have higher retirement incomes for their living expenses, this is a great option.
6. 7-Day Cooling Off Period
If you decide to change your mind after applying for the DBS Home Equity Income Loan, you are allowed to cancel your loan. The best part is, NO penalty fees will apply to you if you cancel within the 7-day cooling off period!
What Happens If I Outlive My Loan Maturity?
Don’t worry! If any of the following scenarios occur to you,
1. You outlive the loan maturity
3. You pass on during the loan period
DBS will not take immediate action against the property you put up for collateral. Instead, mutually acceptable solutions will be formed. These can include repayment plans and housing arrangements. Do take note, however, that interest rates will continue to accrue during this period.
To qualify for the loan, borrowers are required to have or set up a Lasting Power of Attorney. This will allow the borrower to appoint one or more persons to make decisions and act on their behalf should they lose mental capacity.
What Happens If The Value Of The Property Declines?
Borrowers are not required to make any payment to reduce the outstanding loan amount.
So, Has DBS Been Successful In Bringing Back Reverse Mortgages?
Till date, it seems like the DBS Home Equity Income Loan is pretty well-received by the asset rich, cash poor seniors who face difficulty in taking on other loans. The loan is a great option for seniors who want to have a higher monthly payout without sacrificing their current home. But, of course, with any loan comes with risks, so before taking on any loan, make sure you weigh the pros and cons.