Er...what is a reverse mortgage?

Aug 10, 2008

FINANCIAL QUOTIENT

Er...what is a reverse mortgage?

Where do you see this?

In articles on property and retirement planning.

What does it mean?

A reverse mortgage is a financial scheme that allows a property owner to use his home to obtain a sum of cash. Like a line of credit, it provides a regular stream of income.

It is the opposite of a mortgage, in which the property owner pays a monthly instalment to the financial institution in return for a loan with which to buy his home.

With a reverse mortgage, the financial institution pays the borrower, referred to as the mortgagor. The latter is charged interest on the amount he receives.

Why is it important?

A reverse mortgage is an option for those who need additional income, in particular to meet retirement needs.

To qualify, the mortgagor must own a home and attain a certain age; usually, he has to be at least 60. In addition, his home must be fully paid up.

The reverse mortgage is granted based on the age of the borrower, the prevailing value of the property, the projected property appreciation rate and the interest rate. The loan is repayable only when the property is sold, usually upon the death of the borrower, or upon the expiry of the loan term.

In the event of death, the financial institution will sell the property for the estate of the deceased. However, it may allow the children to keep the house if they can repay the loan.

In Singapore, such services are offered by NTUC Income and OCBC Bank.

So you want to use the term. Just say...

My retired uncle, who has no children, has taken out a reverse mortgage on his flat so that he can have an additional stream of income.

Lorna Tan



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