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A reverse mortgage is essentially a secured loan against property that enables a homeowner to access equity in the property.
It is usually marketed to seniors as the structure of such loans can suit their lifestyles.
In layman terms, a reverse mortgage allows a homeowner to receive monthly payments (like an annuity) which is actually the money they have in the property’s value.
For example, an elderly person might have a house worth $350,000 that has been fully paid. He is retired and does not have an income for daily expenses. Selling the house would not be ideal as it would leave him with no home to live in. Therefore, a reverse mortgage would allow the senior to continue living in the house and receive regular cheques which can be used for daily living expenses.
Upon the death of the homeowner, the property would be liquidated and the proceeds would go towards paying for the amount which has been withdrawn. The balance of the proceeds would go to his descendants.
HDB has a program in somewhat the same structure as a reverse mortgage called the lease-buyback scheme.
Banks are also starting to conceptualize loans with structures resembling reverse mortgages.
While these types of home loans are still in it’s infancy in Singapore, reverse mortgages have been around for a long time in other countries and have shown to serve certain segments of society very well.
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