Reverse Mortgages: No Substitute for Comprehensive Retirement Plan

NewImage.jpgCritics of Hong Kong’s decision to offer reverse mortgages starting in 2011 say it can never be a substitute for a long awaited comprehensive retirement plan.

Speaking at RTHK’s City Forum, Elderly Commission chairman Dr Leong Che-hung said one of the major problems with the reverse mortgage scheme would be that elderly people who outlived the mortgage period would no longer receive monthly annuity payments.

The pilot scheme for reverse mortgages, announced by the Hong Kong Mortgage Corporation this month, would enable the elderly to use their self-occupied and non-mortgaged homes as collateral for reverse mortgage loans in return for annuity payments while they continued living in those residences.

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Eligible borrowers – aged 60 or above – could choose to receive monthly annuity payments over a fixed period of 10, 15 or 20 years or over their lifespan.

“Some elderly people may choose to receive monthly annuity payments in smaller amounts for a longer time. But would these be enough to make ends meet?” Leong said.  “In principle, the option of a reverse mortgage, which has been implemented in different places overseas, can be considered. But its details really need to be worked out carefully.”

He also warned of possible family disputes when family members did not agree to use the owner-occupied home of an elderly person as collateral for a reverse mortgage loan.

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  • Despite the success of the American model, HECMs should not be imposed or accepted as the appropriate model for other nations and cultures. Our values are our values and unless held by others, they should have little influence in the creation of reverse mortgages in those other countries expect to the extent that they involve US society or our values are similar in that other society.

    Dr. Leong Che-hung is asking the right questions. The value of term option payments should be greatly questioned. Also allowing the principal residence of several generations to be put at risk does not seem advisable. In our society, few heirs want or need the specific residence of the borrower; it is much different in many other societies.

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