A local bank in Taipei recently launched the first private reverse mortgage loan available in Taiwan, spurring the start of what it anticipates will be a financial product that addresses a growing demand as the nation’s population ages, reports The China Post.
Last month, Taiwan Cooperative Bank unveiled its reverse mortgage program in the greater Taipei area and since then, has approved loans from three applicants.
One of those applicants was a 94-year-old man who used his home in Taipei’s Daan District to obtain a 10-year reverse mortgage from the Bank that gives him a monthly annuity of NT$90,000 (US $2,740).
“The injection of disposable income has allowed him to live in greater comfort and brought him happiness because he can treat his children or grandchildren to big meals or give them cash gifts in red envelopes from time to time,” said the United Daily News.
The man is just one borrower who fits the profile of many Taipei residents who spend most of their working years paying off their mortgages and end up with little cash flow by the time they retire but have plenty of equity in their homes, said Taiwan Cooperative Bank Chairman Liao Tsan-chang in the article.
In Taipei, people aged 45-65 are most accepting of the concept of using a reverse mortgage in retirement, according to an internal survey conducted by Taiwan Cooperative Bank.
“People in that age bracket have worked hard and ridden the crest of Taiwan’s past economic boom to purchase a house, but they have seen their children struggle as wage growth has lagged behind soaring housing prices and are looking into the program to avoid becoming a burden to their offspring,” writes The China Post.
Many of these potential borrowers may find better use in the commercial product being offered by Taiwan Cooperative Bank, as opposed to the public sector reverse mortgage program offered by the Taipei City Government.
Taipei’s Ministry of the Interior introduced reverse mortgages in 2013, however, certain restrictions prevented widespread qualifications because it required applicants to be from low- or middle-income households and have no heirs.
While these restrictions do not apply in the commercial product being offered by Taiwan Cooperative Bank, both reverse mortgage programs require borrowers to be at least 65-years-old.
Another distinction between the two product offerings is that under the Bank’s program, borrowers are allowed to live somewhere else during the loan period and rent out the property, even if they relocate to a senior living facility, for example.
WIth Taiwan Cooperative Bank, reverse mortgage interest rates start at 2.13%, which The China Post notes are slightly higher than the city’s public sector program, which currently charges rates below 1.9%.
The City of Taipei’s reverse mortgage program is also financed out of the city government budget, in turn limiting the overall size of the program ranging from NT $15,000 to NT $43,000.
While the public sector program does address a certain need for lower- and middle-income households, there has been little interest from the eligible borrowers.
Although there have been nearly 1,000 inquiries into the city’s public sector reverse mortgage program since it was first promoted in December 2014, only five have been approved and will begin receiving payouts next year, according to a city official cited by The China Post.
“In particular, seniors were not happy with the program’s many restrictions and thought it unfortunate for the house to be handed over to the government after having been paid for with their lifelong efforts,” the article notes.
One benefit of the public sector program, however, is borrowers can live in their home and continue receiving payments even if they have tapped out their full home equity.
If the city decides to auction the house once a reverse mortgage contract has been completed, “any receipts beyond repaying the reverse mortgage’s accumulated principal and interest will be divided between the city government and the borrower’s heirs based on a set formula.”
The introduction of Taiwan Cooperative Bank’s commercial reverse mortgage program adds to the product offerings for more Taipei seniors who do not meet the income thresholds required for the city program.
And with some estimates projecting that Taiwan seniors age 65 and older will represent 20% of the total population by 2050, the next decade could see some increased interest for reverse mortgages as a retirement solution.
Read The China Post article.
Written by Jason Oliva