The life annuity scheme was widely reported earlier, and has raised some concerns and discussion on the lifelong income upon retirement. Could the Mandatory Provident Fund (MPF) support your retirement? Does the HKMC Annuity Plan worth subscribing? In recent years, more and more people have started paying attention to the Reverse Mortgage. Could it support the rest of your life? Below are six frequently asked questions on the Reverse Mortgage. This might give you a clearer picture on this topic, and have a chance to see if the slogan “the mortgage you paid supports your retirement” is true or not.
Q1: What is a Reverse Mortgage?
A1: A Reverse Mortgage is a loan arrangement, and is operated by HKMC Insurance Limited (HKMCI) for people who are aged 55 or above to apply. The applicant has to use his/her residential property (or more than one property) in Hong Kong as security in order to borrow the loan. He/she can opt to receive monthly payouts either over a fixed period of 10, 15 or 20 years or throughout the entire life. One of the benefits of a Reverse Mortgage is that the applicant still remains as the owner of the property and can continue to stay in the property for the rest of the life1.
Q2: What are the eligibility criteria?
A2: The applicant must be a holder of valid Hong Kong Identity Card, and not be an undischarged bankrupt or otherwise subject to bankruptcy petition when applying the programme. The property owned must not be exceeding 50 years of age. Subsidized sale flat with unpaid land premium, such as those under the Home Ownership Scheme, the Sandwich Class Housing Scheme as well as the Public Rental Housing, could also apply for the Reverse Mortgage (you may refer to the Reverse Mortgage Programme Information Pack for more details).
Q3: Most importantly, how much is the monthly payout amount?
A3: It depends on the age of the applicant, the apprised property value, and also the payment term of the monthly payouts of the mortgage plan (10-year, 15-year, 20-year or life-long). The older the applicant is, the higher the monthly payout amount will be. Besides, you can also enjoy a higher monthly payout amount if property value is higher and payment term is shorter. For example, if an individual aged 55 applies the programme with a property valued at HKD$8 million and opts for a life-long payment term, then he/she will receive a monthly payout amount of HKD13,200. However, if the applicant is aged 70 instead, he/she will receive a monthly payout amount of HKD24,8002.
Q4: When the applicant passed away, could the inheritors redeem the property?
A4: The inheritors have the preferential right to redeem the property as long as the outstanding loan amount owed by the applicant has been repaid in full. If the inheritors do not exercise such a right, the bank will sell the property and pass the surplus of the sale proceeds from the property to the inheritors. If there is any shortfall, the inheritors need not worry as the shortfall will be borne by HKMCI and are not responsible for any payment.
Q5: If the applicant needs to pay some unexpected medical bills, but could not sell and cash out the property, then what should he/she do?
A5: Reverse Mortgage provides a lump-sum payout for applicants for some purposes, such as full repayment of the existing mortgage on the property, payment for home repairs and maintenance of the property, payment for medical expenses, or even purchase of interment right in columbarium and cemetery, etc. But of course, the monthly payout amount will be lower after drawing a large lump-sum payout.
Q6: Any tips for the application?
A6: Three tips before you apply for a Reverse Mortgage:
- The older the applicant is, the higher the monthly payout amount will be. Therefore, it is better for you to manage your MPF, and all other liquid assets first upon retirement. You could still apply for a Reverse Mortgage later on, or when you realize you have difficulty in handling your monthly expenses from your savings.
- The applicant may choose to assign his/her cash-valued life insurance policy as collateral in addition to the residential property under a Reverse Mortgage to increase the amount of monthly payouts3.
- Once successfully applied, the property value and the loan interest will be locked. You do not have to worry the surge or drop of the property value, or the changes in loan interest anymore. The applicant could then enjoy a carefree retirement for the rest of the life.
After going through answers to the above 6 questions, in addition to MPF, you should know now there’s one more way to retire happily.
1 The Hong Kong Mortgage Corporation Limited (Visited on 2018/9/16):
2 The Hong Kong Mortgage Corporation Limited (P.6, Table 2, Visited on 2018/9/16):
3 The Hong Kong Mortgage Corporation Limited (P.9, Visited on 2018/9/16):
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