The Ministry of National Development (MND) is studying several countries that have established reverse mortgage plans, revealed National Development Minister Khaw Boon Wan and reported in the media.
He made the statement in Parliament in response to a query from Nee Soon GRC MP Lee Bee Wah.
“We are studying several countries with established reverse mortgage plans, and to learn from their experiences,” he said.
Notably, a reverse mortgage is a “loan taken up by a property owner using his property as collateral. However, unlike a traditional mortgage, the borrower need not make cash repayment during the loan tenure. He only needs to repay the loan with accumulated interest upon termination or death, typically from the sales proceeds”, said Mr Khaw.
This allows the property owner to unlock some equity, while still retaining the financial upside from any appreciation in property value, he added.
But the Minister noted that the reverse mortgage scheme also has its risks since it does not require periodic cash payments such that the loan grows with interest, and the owner has to bear property risks.
“If the market value of the property becomes less than the outstanding loan, the owner may have to sell the property to repay the loan.”
He also pointed out the NTUC Income offered reverse mortgages for HDB flats in 2006, but decided to stop offering the product due to low take-up (only 24 households signed up).
In fact, the countries being studied also posted low take-up rates for the product.
“As the reverse mortgage is a complex financial product, we need to study it carefully, consult our people, before we decide whether to introduce it as an additional option for our seniors.”