Best Mortgage Lenders For Older Borrowers – DBS and CPF have joined forces to create the new DBS Home Equity Income Loan. This helps elderly Singaporeans monetize their assets without having to sell them. The concept of this loan is not new (banks have tried to sell reverse mortgages before, but they were never popular). However, this is the first time we see it linked to CPF. If you’re not familiar with the concept of a reverse mortgage, here’s how it all works:
In the case of a regular mortgage loan, the bank first lends you money for the property and you repay it every month until the end of the loan period.
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When the loan ends, you must repay the entire amount received plus interest; this is usually done by selling the home to pay off the loan.
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A reverse mortgage is not the same as a cash-out refinance, a product that many banks also call a “home equity loan.”
A cash-out refinance is when you get a loan using your property as collateral. Unlike a reverse mortgage, a cash loan means that you will receive the loaned money in one lump sum. In addition, you should make monthly payments as usual.
The loan will only be available to Singapore residents and permanent residents aged 65 to 79 years. This loan is intended only for owners of a paid-off private property (apartment owners already have other options, such as the hire purchase program). .
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The maximum loan amount is the difference between your current CPF savings and your increased CPF pension amount
For example, if you have $150,000 in your CPF account and the current extended pension total is $297,000, then the maximum loan amount is $147,000.
Once the loan is approved, the bank will transfer the money to your CPF account. You will then receive correspondingly higher CPF payments from your currently topped up Retirement Account (RA).
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The loan interest rate is fixed and is 2.88%. At the end of the loan period, you will have to repay the entire borrowed amount plus interest. You are expected to do this by selling your private property. However, we were told that – if
Earlier reverse mortgages were unpopular because they lacked this key feature. In the past, interest rates were always variable, so you didn’t know how much you would have to repay at the end of the loan term.
A common fear was that if interest rates rose, you wouldn’t be able to cover the amount owed even if you sold the property.
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We do not yet know if refinancing is allowed for this loan (stay tuned and we will keep you updated). However, DBS said there is no penalty if you decide to sell your private property and pay off the outstanding debt before the loan ends.
We have seen partial waivers of prepayment penalties in previous reverse mortgage products; but we don’t think we’ve seen one that promises zero penalties before.
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In our experience, banks don’t like immediate foreclosure anyway (they’ll lose money too!). But it’s good to have it as a promise.
This does not mean that the loan will be forgiven in such situations; only that the bank will try to reach an agreement other than the outright purchase.
This means that if your property depreciates in value, the bank will not require you to make an immediate cash settlement to compensate. This is good, but we rarely see margin calls in Singapore anyway (before this happens, the value of your property has to drop by an abnormally large amount).
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Benefit of a reverse mortgage. It is not uncommon for elderly Singaporeans to have a fully paid-up property worth over a million and yet not have enough income to really enjoy retirement.
These seniors often don’t feel comfortable renting to strangers, and moving at their age is a hassle (plus all their friends and places to stay are probably nearby).
If you are 65, there are no other loan options that will still give you a 30-year repayment period. Similarly, there are few funding opportunities for people aged 70-80.
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The higher your monthly CPF withdrawals, the less your children have to contribute to your upkeep. There are also no monthly loan payments to make, unlike cash-out refinancing or other loan options.
A cash withdrawal can be dangerous. Consider the consequences of online fraud or heavy gambling habits if the borrower owns 80% of the value of their property
If you have no other way to repay the loan, there is a risk that your property will be sold. Please note that the interest rate (see below) on a reverse mortgage is higher than that of a typical home loan, which is currently 1.3%.
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When the home is sold, most of the proceeds will go toward paying off the higher interest rate.
This may reduce the amount you leave to your beneficiaries, so discuss this with your estate advisor of choice.
If you want to use the property to finance your children’s or grandchildren’s education abroad or to start a business, a reverse mortgage will not help you (it will only increase your monthly payment).
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Similarly, investment-oriented homeowners may want to monetize their property by choosing other investment assets (stocks, bonds, gold, etc.) for long-term retirement.
We think 2.88 percent is high considering that the cash yield is around 1.3 to 1.6 percent.
But that may not matter, depending on your goals (if your kids are already doing well and you’re 95 when the loan ends, you probably won’t care how much lower the returns are).
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This will become increasingly important given Singapore’s aging population; and provides another safety valve for homebuyers. At the very least, increased payments can help ensure housing maintenance is paid for.
For more on this topic as events unfold, follow us on Stacked. We will also provide you with updates and detailed reviews of properties, both new and resale.
Ryan J Ryan is a veteran print journalist turned digital. He has lived in almost every type of housing in Singapore, from apartments to landed houses. For the past 18 years, he has been a content creator for companies large and small, a co-founder of an education company, and an occasional radio host. He also spends a lot of time and money painting little plastic soldiers.
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My name is Sean and our goal is to help home buyers and sellers in Singapore make the best decision for themselves. Do you have any questions? Send us an email at: hello@
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