Reverse mortgages have finally reached Malaysia! On the 14th December 2021, Cagamas launched the first reverse mortgage scheme, allocating RM100 million to assist the elderly finance their retirement. Through the loan, retired homeowners can now receive fixed monthly incomes using their primary residence as a collateral, while still remaining to live in it.
To put it simply, a reverse mortgage loan allows homeowners to monetise the value of their fully-paid home. This value is converted into a monthly source of income throughout their entire lifetime. With the SSB scheme, our elderly can use this money for any purpose — necessities, medical expenses etc. Anything to make their retirement years more comfortable. They can also receive lump-sums for certain cases like property repairs.
What’s good is, they won't have to make any repayments during the loan tenure! The whole loan balance is due only when they either:
If the loan borrower passes away, their estate or next of kin can either:
If the selling amount doesn’t cover the loan amount, Cagamas themselves will guarantee to bear the extra costs.
Here’s a short introductory video on the scheme!
Some fair points are highlighted in one of TheStar’s article, pointing out that other financial options are needed to fund Malaysian employees’ retirements.
“54% of Employees Provident Fund (EPF) contributors aged 54 have less than RM50,000 set aside for retirement. What’s more, 70% of contributors who withdraw their funds at age 55 use up their savings in less than a decade after retiring.” - TheStar, 2021
With these figures in mind, income security for the elderly is definitely an area of concern, and the SSB scheme aims to combat this for senior citizens who have houses but not enough money to get by in their golden years.
This is a tough question. Reverse Mortgages are completely new in Malaysia. The obligation to repay the loan will pop up when the borrower dies, leaves or sells the property. Even with a Cagamas guarantee to greatly reduce credit risks, it will be interesting to see how this scheme will be received by the senior population.
As we all know, filial piety is rooted and highly practised by many Malaysian families. Elders usually:
- Receive regular financial support from the younger generation.
- Pass down their properties to the younger generation to preserve the family wealth.
The reverse mortgage loan may jeopardise this inheritance especially if the succeeding generation doesn’t have the money to take back the property or buy their own one. Because of this, the response to reverse mortgages in Malaysia may not be so strong.
For now, the Cagamas SSB is available for eligible homeowners in the greater Klang Valley, but will gradually expand to other areas depending on how popular it is.
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