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Reverse Mortgage Programme

Reverse Mortgage Programme

 

The Mortgage You Paid Supports Your Retirement

Introduction

The Reverse Mortgage Programme is operated by The Hong Kong Mortgage Corporation Limited or its subsidiary (Insurer) for people, who are aged 55 or above, to apply for reverse mortgage loans.

 

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What is a Reverse Mortgage?

Reverse mortgage is a loan arrangement. It enables a borrower to use his residential property (or more than one property) in Hong Kong as security to borrow from a lender. Although the borrower mortgages his property in favour of the lender, he remains as the owner of the property and can continue to stay in the property for the rest of his lifeNote 1.

 

The borrower can opt to receive monthly payouts either over a fixed period of 10, 15 or 20 years or throughout his entire life, and the borrower may also borrow lump-sum payouts for specific purposes when needed.

 

In general, the borrower does not need to repay the reverse mortgage loan during his lifetime, unless the reverse mortgage loan is terminated under certain specified circumstances.

 

When the reverse mortgage loan is terminated, the borrower (or his personal representatives) has the preferential right to redeem the property by repaying to the lender in full the outstanding loan amount owed by the borrower under the reverse mortgage. If the borrower (or his personal representatives) does not exercise such a right, the lender will sell the property to recover the outstanding loan amount the borrower owes.

 

If the sale proceeds from the property exceed the outstanding loan amount owed by the borrower, the lender will pass the surplus to the borrower (or his personal representatives) after paying off such outstanding loan amount in full. If there is any shortfall, the borrower (or his inheritors) needs not worry as the shortfall will be borne by the Insurer under an insurance arrangement between the lender and the Insurer.

 

Note 1: Borrower should however note that under certain specified circumstances, the lender has the right to terminate the reverse mortgage loan. If a borrower does not repay the outstanding loan amount owed to the lender in full to redeem the property, the lender will take possession of and sell the property, in which case the borrower can no longer stay in the property. Please refer to the Important Notice for further information.

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Eligibility Criteria

In general, the borrower and the property must:

 

Eligibility Criteria
Borrower
  • be aged 55 or above (or aged 60 or above for owners of subsidised sale flats with unpaid land premium Note 2) and a holder of valid Hong Kong Identity Card
  • not be an undischarged bankrupt or otherwise subject to bankruptcy petition or individual voluntary arrangement
Property Note 3
  • be a residential property in Hong Kong
  • be held in the borrower’s own name, or in joint names among the borrower and up to 2 co-borrowers as joint tenantsNote 4
  • not exceed 50 years of ageNote 5
  • not be subject to any resale restrictions (except for the alienation restriction of subsidised sale flat Note 6 imposed by the relevant authority)
  • not be rented out unless with the lender’s written approval

Note 2: If the property is a subsidised sale flat with unpaid land premium, the borrower should be aged 60 or above according to the specific age requirement as prescribed by the Hong Kong Housing Authority (HA) or the Hong Kong Housing Society (HS).

 

Note 3: If the borrower acquires the property at an undervalue (for example, the borrower may have acquired the ownership of the property by way of gift or for no consideration or for a consideration which is significantly less than the market value), the application for a reverse mortgage loan will not be accepted until 5 years after the date of the relevant instrument through which the borrower acquires the property. The borrower should be mindful of this issue if he wishes to effect any change to the ownership status of any property which he intends to use for the purpose of a reverse mortgage loan. Before the borrower takes any action or otherwise incurs any costs and expenditures, he should approach a lender or solicitors for advice.

 

Note 4: The other joint tenant(s) must become the co-borrower(s) under the same reverse mortgage loan, and must satisfy the relevant eligibility criteria.

 

Note 5: Property exceeding 50 years of age will be considered on a case-by-case basis and subject to building inspection.

 

Note 6: For a subsidised sale flat with unpaid land premium, it must be under the Home Ownership Scheme, Private Sector Participation Scheme, Tenants Purchase Scheme and Green Form Subsidised Home Ownership Pilot Scheme of the HA, the Flat-For-Sale Scheme, Sandwich Class Housing Scheme and Subsidised Sale Flats Projects of the HS, or any other subsidised housing schemes as accepted by the Insurer from time to time.

 

To avoid any unnecessary costs and expenditures, people who are interested in applying for a reverse mortgage loan should first conduct a preliminary eligibility assessment with a bank before taking actions such as changing the title of the property or conducting a property inspection. 
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Key Product Features and Benefits

Key Product Features and Benefits
Flexible payment termThe borrower can choose to receive monthly payouts for a fixed period of 10, 15 or 20 years or throughout his entire life. The borrower has the flexibility, at any time during the existing payment term, to apply to switch to another payment term.
Lump-sum payout

The borrower may apply to borrow lump-sum payouts at the time of initial loan application and/or at any time during the payment term the borrower chooses for the following purposes Note 7:

  • full repayment of the existing mortgage on the property (applicable only at the time of initial loan application), please refer to the Important Notice for details
  • payment for major repair and maintenance of the property
  • payment for medical expenses (treatment outside Hong Kong is acceptable)
  • payment for the fees payable to the relevant solicitors and medical practitioners in connection with the enduring power of attorney or the fees in connection with the application for a court order under Part II of the Mental Health Ordinance

For borrower drawing a larger lump-sum payout amount, there will be correspondingly a lower monthly payout amount. If the borrower withdraws the maximum amount of lump-sum payout, he will not receive any monthly payouts thereafter.

Residing in the propertyAfter taking out a reverse mortgage loan, the borrower is still entitled to continue to stay in the property for the rest of his life. However, the borrower is to be responsible for the on-going property maintenance as well as the settlement of rates, government rents and management fees, etc.
No repayment during the borrower's lifetimeIn general, the borrower does not need to repay the outstanding loan amount he owes to the lender during his lifetime, unless the reverse mortgage loan is terminated under certain specified circumstances.
No penalty for early full repaymentThe borrower may fully repay the outstanding loan amount and redeem the property at any time and there is no penalty for such full repayment. However, he may not repay only a part of the outstanding loan amount.
Six-month cancellation periodIf the borrower wishes to terminate the reverse mortgage loan for whatever reason, provided that he notifies the lender within the first six (6) months and repays in full the outstanding loan amount on the proposed repayment date, he will be given a refund and waiver of all mortgage insurance premiums. However, the borrower still needs to bear any accrued interest and financed fees in the outstanding loan amount and also the relevant legal fees in relation to the termination of the reverse mortgage loan.

Note 7: Supporting documents are required for each lump-sum payout application. Other purposes not listed above may be considered on a case-by-case basis.

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Monthly Payout Amount

In general, the higher is the property value, the higher will be the monthly payout amount. The older the borrower is at the time of formal application and the shorter is the payment term, the higher will also be the monthly payout amount. If there is more than one borrower, the scale of the monthly payout amount will be lower than the scale for a single borrower, and the entry age of the youngest borrower will be used for calculation of the monthly payout amount.

 

The monthly payout amount is the amount to be received by the borrower and will remain unchanged throughout the payment term. Once the monthly payout amount is determined, it will not be affected by the cost involved, movement in property price and interest rate, inflation/deflation or other economic factors. However, if the borrower takes out a lump-sum payout, the amount of the subsequent monthly payouts will be reduced accordingly.

 

Table 1: Maximum amount of specified property value for payout calculation
Appraised property value @Maximum amount of specified property value for payout calculation ^#
HK$8 million or less100% of appraised property value
Over HK$8 million to HK$12 millionHigher of 80% of appraised property value and HK$8 million
Over HK$12 million to HK$16 millionHigher of 70% of appraised property value and HK$9.6 million
Over HK$16 millionHigher of 60% of appraised property value and HK$11.2 million (capped at HK$15 million*)

@ For a subsidised sale flat with unpaid land premium, the appraised property value is determined as the open market value minus the land premium amount.

^ For any refinancing property with appraised property value at HK$12 million or below, the maximum amount of the specified property value for payout calculation will be 80% of the appraised property value.

# The determination of maximum amount of specified property value is subject to the aggregate amount of appraised property value in the case of more than one property as security under a reverse mortgage loan.

* For any property valued at HK$25 million or above, the maximum amount of the specified property value for payout calculation will be capped at HK$15 million.

 

 

Entry age55 years old60 years old70 years old
Table 2: Monthly payout amount (per HK$1 million of specified property value)
Payment termOne borrowerTwo borrowersThree borrowersOne borrowerTwo borrowersThree borrowersOne borrowerTwo borrowersThree borrowers
10-year

$3,200

$2,800

$2,500

$3,700

$3,300

$3,000

$5,100

$4,600

$4,200

15-year

$2,400

$2,150

$1,900

$2,800

$2,500

$2,250

$3,800

$3,500

$3,200

20-year

$2,050

$1,800

$1,600

$2,400

$2,100

$1,900

$3,300

$3,000

$2,700

Life

$1,650

$1,450

$1,250

$2,000

$1,800

$1,550

$3,100

$2,800

$2,400 

 

For refinancing of any reverse mortgage loan subsisting as at 30 April 2014 or with counselling certificate issued on or before 30 April 2014, details of (i) the maximum amount of the specified property value for payout calculation and (ii) preferential insurance premium credit are set out here.

 

 

Table 3: Examples of calculation of monthly payout amount (HK$)
 Example 1Example 2Example 3
Borrower(s) and entry agePerson aged 70Husband aged 70 and wife aged 60Husband aged 70 and wife aged 70
Payment termLife10-year20-year
Property value$2,500,000$6,000,000$28,000,000*
Monthly payout amount$3,100 x 2.5 = $7,750$3,300 x 6 = $19,800$3,000 x 15 = $45,000

* For any property valued at HK$25 million or above, the maximum amount of the specified property value for payout calculation will be capped at HK$15 million.

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Assignment of Life Insurance Policy

The borrower may choose to assign his life insurance policy to the lender as collateral in addition to his residential property under a reverse mortgage to increase the amount of monthly and lump-sum payouts of the reverse mortgage loan. However, the option of life insurance policy assignment is available only when the number of borrowers is not more than two. It is necessary that the beneficiary of the borrower’s life insurance policy be the borrower himself or his personal representatives in the case of a single-borrower application, or the co-borrower in the case of a joint-borrower application. The borrower is required to arrange with his insurance company to change the beneficiary as necessary.

 

The amount recoverable under a life policy assignment to be used by the lender for repayment of reverse mortgage loan is limited to the cash surrender value of the life insurance policy. There is no limit on the number of life insurance policies which, subject to vetting, may be accepted for assignment but the aggregate amount of cash surrender value of the life insurance policies for payout calculation is capped at the specified property value of the property under the reverse mortgage loan. The assignment can be made at the time of application for a reverse mortgage loan or at any time before the reverse mortgage loan is terminated.

In general, when the reverse mortgage loan is terminated and the sale proceeds from the property are insufficient to repay the outstanding loan amount in full, the lender will apply the payment derived from the life insurance policy, up to the then available cash surrender value, to recover any shortfall. Any remaining shortfall will be borne by the Insurer under an insurance arrangement between the lender and the Insurer. In any case, any surplus after full repayment of the reverse mortgage loan shall be passed to the borrower (or his personal representatives).

 

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Eligibility Criteria for Assignment of Life Insurance Policy

In general, the life insurance policy eligible for assignment must:

 

Eligibility Criteria for Assignment of Life Insurance Policy

Life insurance policy

  • be taken out by the borrower as both the policyholder and the insured
  • be issued by an authorized insurer in Hong Kong
  • be denominated in Hong Kong Dollars or United States Dollars
  • have accrued a cash surrender value which is non-decreasing for the remaining term
  • have the premium fully paid up by the policyholder
  • not be associated with any investment features
  • be assignable and not contain any restriction on change of beneficiary
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Key Features and Benefits with Assignment of Life Insurance Policy

Key Features and Benefits

Higher payout amount

With the assignment of life insurance policy, the borrower can receive higher amount of monthly and lump-sum payouts through releasing the value of his life insurance policy, thereby enhancing flexibility in financial planning.

Lump-sum payouts for payment of life insurance policy premium and repayment of policy loan

If the borrower’s life insurance policy has not been fully paid up and/or has a policy loan granted by the insurance company, the borrower may apply to borrow a lump-sum payout to fully pay up the life insurance policy and/or repay the policy loan at the time of application for assignment of the life insurance policy.

No penalty for release of life insurance policy

The borrower may apply for the release of his life insurance policy assigned to the lender under the reverse mortgage loan at any time subject to the payment of a handling fee and there is no penalty for such release.

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Payout Amount of Reverse Mortgage with Assignment of Life Insurance Policy

The amount of monthly and lump-sum payouts for a reverse mortgage loan secured by a property and an assignment of life insurance policy is solely determined by the Insurer with reference to the specified property value and the applicable cash surrender value of the life insurance policy at the time of the relevant application. 

 

Table 4: Indicative monthly payout amount (per HK$1 million of specified property value plus HK$1 million of cash surrender value) +

Entry age

55 years old60 years old70 years old

Payment term

One
borrower
Two
borrowers
One
borrower
Two
borrowers
One
borrower
Two
borrowers

10-year

$5,520

$4,800

$6,500

$5,780

$9,100

$8,200

15-year

$4,160

$3,670

$4,920

$4,340

$6,840

$6,220

20-year

$3,570

$3,080

$4,200

$3,700

$5,860

$5,320

Life

$2,850

$2,490

$3,520

$3,080

$5,500

$4,960

+ The monthly payout amounts are solely determined by the Insurer on a case-by-case basis and may be different from the indicative levels.

 

  

Table 5: Examples of calculation of monthly payout amount (HK$)
  Example 1 Example 2

Borrower(s) and entry age

Husband aged 70 and wife aged 60

Husband aged 70 and wife aged 70

Payment term

10-year

20-year

Property value

$6,000,000

$28,000,000*

Cash surrender value at application for assignment of life insurance policy

$6,000,000

$15,000,000

Monthly payout amount

$5,780 x 6
= $34,680

$5,320 x 15
= $79,800

 *  For any property valued at HK$25 million or above,  the maximum amount of the specified property value for payout calculation will be capped at HK$15 million.

 

 

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Costs

Costs

Interest expense

Reverse mortgage is a loan arrangement and interest is charged by the lenders on the outstanding loan amount (including interest) on a compound basis.

Mortgage insurance premium

The mortgage insurance premium is divided into 2 parts and the amount payable by the borrower will be debited to the outstanding loan amount:

 

(1) Upfront Mortgage Insurance Premium is payable by 7 annual instalments starting from the 4th until the 10th anniversary. Each annual instalment is calculated at 0.28% of the specified property value and, if applicable, the cash surrender value at application for the assignment of life insurance policy under the reverse mortgage loan

 

(2) Monthly Mortgage Insurance Premium is payable on a monthly basis at the annual rate of 1.25% of the outstanding loan amount

Counselling fee

The borrower needs to pay a fee to the reverse mortgage counsellor for the counselling service.

If the borrower decides to take out a reverse mortgage loan, he may choose to finance such fee in the reverse mortgage loan.

Legal fees

The borrower will be responsible for the legal fees for execution of the mortgage documents and other relevant legal documents. The borrower may choose to finance such legal fees in the reverse mortgage loan.

Handling fees

A handling fee of HK$1,000 will be charged for each successful application for change of payment term, request for a lump-sum payout, adding/releasing additional property as security or assignment/release of life insurance policy after a reverse mortgage loan has been granted. Such handling fees will be debited to the outstanding loan amount.

Other fees and expenses

Where a building inspection report is required (if the age of the property exceeds 50 years), the borrower will need to bear such a cost. The borrower may choose to finance such fees for the building inspection report in the reverse mortgage loan.

 

For an application for a reverse mortgage loan with the assignment of life insurance policy, the borrower will be responsible for the fees and expenses charged by the insurance company, if any, for any necessary arrangement relating to the assignment.

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General Application Flow

Please read the Important Notice carefully before proceeding further with application for a reverse mortgage loan. The notice  provides additional information about reverse mortgage, and should always be read together with the Information Pack and the other materials relating to the Reverse Mortgage Programme.

 

General Application Flow

Step 1:

Pre-application

The borrower does not need to apply for a reverse mortgage loan through any intermediary (except banks). Please enquire at a bank direct which will provide the borrower with more details and conduct a preliminary eligibility assessment. For subsidised sale flats with unpaid land premium, lenders have obtained consent from the relevant authority for creation of mortgage under the Reverse Mortgage Programme and the borrower is not required to apply for separate consent from the relevant authority.

Step 2:

Counselling


Before making a formal application for a reverse mortgage loan, the borrower must first make an appointment with an eligible counsellor and ascertain the counselling fee. Borrower is encouraged to bring along his spouse, children, other next of kin and any person who may be affected by the decision to obtain a reverse mortgage loan, including any occupant in the property, to the counselling session.

 

The counsellor will explain the general features of a reverse mortgage loan, including the assignment of life insurance policy to the lender, the major rights and obligations as well as the legal consequence of taking out a reverse mortgage loan. The counsellor will issue a Counselling Certificate to the borrower if he has successfully completed the counselling.

Step 3:

Formal application

After obtaining the Counselling Certificate, the borrower may approach a bank to make a formal application.

Step 4:

Execution of
legal documents

If the formal application is approved by the lender, the borrower will be required to execute the mortgage documents and other related legal documents.

Enquiry

If you have any enquiry, please contact a bank, your counsellor or the Insurer for more information.

Reverse Mortgage Programme Hotline: 2536 0136

Enquiry E-mail: rm_enquiry@hkmc.com.hk

General Information

1) List of Banks
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2) List of Reverse Mortgage Counsellors (provided by The Law Society of Hong Kong)
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3) Information Pack
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4) Leaflet
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5) Level of Monthly Payout and Maximum Lump-Sum Payout Amount at Closing
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6) Important Notice
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7) Reverse Mortgage Programme Statistics
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8) Enduring Power of Attorney Leaflet
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9) List of Solicitors and Doctors for Preparation of Enduring Power of Attorney
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10) Special Announcement for Refinancing Arrangement (7 April 2014)
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11) Seminar on “Reverse Mortgage- Enduring Power of Attorney and Part II Order for Mentally Incapacitated Persons, Role of Legal and Medical Practitioners"
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12) Survey Report on Reverse Mortgage (December 2010)
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