What is Reverse Mortgage? Is it coming to Malaysia?
Following article is from a good friend of mine who’s considered a mortgage guru in Penang. Happy reading and learning from Miichael Yeoh.
You might be wondering, what is this reverse mortgage. How does it work? How can it benefit me? Not to worry, I am going to answer in this article.
What is Reverse Mortgage?
The west started reverse mortgage many years ago. This product is not new in the mortgage world. It caters to senior citizen who has a property in their names. The owner can then use the property to mortgage to the bank.
Normally in typical borrowing, you need to pay the monthly installment. Here’s what is interesting. In reverse mortgage you do not have to pay the monthly installment. The bank will instead be the one paying you. What the bank does is that they will do a market valuation on the property. After that, they will give the loan based on the margin of finance they are comfortable with. Typically, 50 to 60%.
Do not expect high margin of finance as the bank have to calculate the future lending cost such as interest rate and property price. The loan must be repaid when the borrower deceased, refinance or sells the property.
How does the bank pay me?
Homeowner can choose either of this 3 ways to obtain their borrowing with the bank .
- A fixed monthly payment with predetermine no of months/years of payout.
- A lump sum payment upfront
- A combination of both
Who owns the house?
Just like any mortgages taken from the bank, you are still the owner of the house. You mortgage the property to take out a loan. The agreement will stop when the borrower deceased, sells the house or refinance to another bank.
How much does it cost?
Here are some the costs that you will need to pay.
- Legal Fees
- Valuation fees
- Mortgage Insurance
- Monthly maintenance fee
Depending on the bank you applied some will advance the costs and put in the loan.
The pros and cons of Reverse Mortgage
In any mortgage borrowing there are going to be advantages and disadvantages. Borrowers are advised to choose wisely when applying.
- Do not need to pay monthly installments
- Funds can help borrowers in living expenses such as medical bills and debt repayment
- The fund can help homeowners enjoy their retirement.
- With the fund homeowners will be able to maintain their current lifestyle.
- The closing cost such as legal fee and insurance can be steep
- The property will be mortgage with the bank
Will Reverse Mortgage come to Malaysia?
Update. Cagamas has launched reverse mortgage with an allocation of just RM100 million. Read here.
Banks needs a healthy mortgage portfolio. Reverse Mortgage will give them a new avenue to expand their products. Yes, I believe that one day we will have this product in Malaysia. The banks might tailormade reverse mortgage to suit Malaysians.
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Would I take this up?
If I am a senior Malaysian, would I take this up? It is definitely an interesting concept. I still think I am the one who will just take the easier way out; sell the property and then use the money to travel here and there while I am still able to. Health is super important in this case. However, if I am someone who would be staying at one place versus travelling, then this reverse mortgage may just be a move. It’s simple. Bank pays you to continue staying in the house. Definitely a wow, right? Happy deciding when it’s available and you are old enough to do so.
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