What exactly is a reverse mortgage, and could it be introduced in Malaysia? This financial product, which has been in use in the West for quite some time, allows senior citizens who own property to leverage it for a loan without the burden of monthly repayments. Instead of the borrower making payments to the bank, the bank pays the borrower based on a percentage of the property’s value, typically around 50 to 60%. Repayment is due upon the borrower’s passing, property sale, or refinancing.

How does the bank pay me?

Homeowners can choose one of three ways to obtain their borrowing from the bank: a fixed monthly payment with a predetermined number of months/years of payout, a lump sum payment upfront, or a combination of both.

Who owns the house?

 Just like any mortgage taken from the bank, you are still the owner of the house. You mortgage the property to take out a loan. The agreement will terminate when the borrower passes away, sells the house, or refinances with another bank.

How much does it cost?

Here are some of the costs that you will need to pay: legal fees, valuation fees, mortgage insurance, and monthly maintenance fees. Depending on the bank you apply to, some will advance the costs and put them into the loan.

Pros and Cons of Reverse Mortgage: In any mortgage borrowing, there are advantages and disadvantages. Borrowers are advised to choose wisely when applying.

Pros:

1. You do not need to pay monthly installments.
2. Funds can help with living expenses such as medical bills and debt repayment.
3. The fund can help homeowners enjoy their retirement.
4. With the fund, homeowners will be able to maintain their current lifestyle.

Cons:

1. The closing costs, such as legal fees and insurance, can be steep.
2. The property will be mortgaged with the bank.

Will Reverse Mortgage come to Malaysia?

Banks need a healthy mortgage portfolio, and reverse mortgage could provide them with a new avenue to expand their products. Currently, in Malaysia, it is under Cagamas (Mortgage Corporation of Malaysia) and is called Skim Saraan Bercagar (SSB) and SSB Islamic (SSB-i).

Here are the criteria for borrowers:

a) Malaysian

b) 55 years old and above

c) Owner or joint owners of a residential property

d) For a joint loan, the joint borrower can be a partner, parent, sibling, or child, subject to age limit

Do take note of the property criteria:

a) Residential property in Malaysia held in Borrower’s or joint borrowers’ name(s).

b) For a joint Skim Saraan Bercagar Loan, joint ownership of property is required.

c) Property must be owner-occupied and be the primary place of residence.

d) Freehold property or leasehold property with remaining lease tenure not less than 90 years

e) Free from encumbrances such as mortgage and other financial liabilities.

For more detailed information on SSB and SSB-i, interested individuals can visit https://ssb.cagamas.com.my/. It’s essential to thoroughly understand the terms and conditions before applying for a reverse mortgage.

From the Desk of Miichael Yeoh