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Policy Reverse Mortgage Programme

The Hong Kong Mortgage Corporation Limited

Policy Reverse Mortgage Programme

Policy Reverse Mortgage

Enriches Your Retired Life

Introduction

The Policy Reverse Mortgage Programme is operated by HKMC Insurance Limited (HKMCI), a wholly-owned subsidiary of The Hong Kong Mortgage Corporation Limited (HKMC), for people who are aged 60 or above to apply for policy reverse mortgage loans.

 

What is a policy reverse mortgage?

Policy reverse mortgage is a loan arrangement. It enables a borrower to use his life insurance policy as collateral to borrow from a lender.

 

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

 

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

 

In most cases, the policy reverse mortgage loan becomes due and payable when the borrower passes away. The lender will enforce his life insurance policy within a specified timeframe to repay in full the outstanding loan amount owed by the borrower. The amount recoverable from his life insurance policy to be used by the lender for repayment of the policy reverse mortgage loan will be the death benefits of his life insurance policy.

 

If the amount of the death benefits exceeds the outstanding loan amount owed by the borrower under the policy reverse mortgage loan, the lender will pass the surplus to his personal representatives after repaying the outstanding loan amount in full. If there is any shortfall, his inheritors need not worry as the shortfall will be borne by HKMCI under an insurance arrangement between the lender and HKMCI.

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Eligibility Criteria

Eligibility Criteria

Borrower
  • be aged 60 or above and a holder of a valid Hong Kong Identity Card; and
  • not be an undischarged bankrupt or otherwise subject to bankruptcy petition or individual voluntary arrangement (except if the indebtsdness under the relevant individual voluntary arrangement is to be repaid in full at closing by way of lump-sum payout).
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
  • not subject to any restrictions or deductions on the payment of death benefit by the Insurance Company
  • not be associated with any investment features (such as Investment-Linked Assurance Schemes regulated by the Securities and Futures Commission of Hong Kong)
  • have the premium fully paid up
  • be assignable and not contain any restriction on change of beneficiary
  • the beneficiary of his life insurance policy be the borrower or his estate1 .

Note 1: Please refer to the Important Notice for further information

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Key product features and benefits

Key product features and benefits

Flexible payment term

The borrower can choose to receive monthly payouts either over a fixed period of 10, 15 or 20 years or throughout his entire life (until the maturity of his life insurance policy). The borrower has the flexibility, at any time during his 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:

  • full repayment of an outstanding policy reverse mortgage loan or an outstanding policy loan on the life insurance policy (applicable only at the time of policy reverse loan application)
  • settlement of unpaid premium of the life insurance (applicable only at the time of policy reverse loan application)
  • repayment of the borrower’s personal loans (including revolving credit facilities or credit card balances), which are originated by an authorized institution carrying on banking business under the Banking Ordinance, an authorized insurer carrying on insurance business under the Insurance Ordinance or a licensed money lender under the Money Lenders Ordinance3
  • payment for home improvement, repairs and maintenance of the property in Hong Kong
  • payment for medical expenses (treatment outside Hong Kong is acceptable)
  • payment for fees for setting up an enduring power of attorney
  • purchase of interment right in columbarium and cemetery, as well as expenses for funeral services

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.

Two options of mortgage plans

The borrower can choose a floating-rate or fixed-rate mortgage plan to meet his financial needs. In general, a fixed-rate mortgage plan offers higher payout amounts than a floating-rate mortgage plan.

No repayment during the borrower’s lifetime

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

No penalty for early full repayment

The borrower may fully repay the outstanding loan amount and redeem the life insurance policy 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 cooling-off period

If the borrower wishes to terminate his policy reverse mortgage loan for whatever reason, provided that he notifies the lender within the first six months and repays in full the outstanding loan amount on the proposed repayment date, he will be given a full refund or waiver of the relevant 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 his policy reverse mortgage loan.

Note 2: Supporting documents are required for each lump-sum payout application. Other purposes not listed above may be considered on a case-by-case basis.

 

Note 3: Relevant loans must be made at least 12 months before the application date of lump-sum payout. However, this requirement is not applicable to revolving credit facilities or credit card balances.

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Monthly payout amount

In general, the higher is the death benefits of the life insurance policy, the higher will be the monthly payout amount. The older the borrower is at the time of loan application and the shorter is the payment term, the higher will also be the amount of the monthly payout.

 

The mortgage plan the borrower chooses will also affect the amount of monthly payout. In general, the payout amounts offered under a fixed-rate mortgage plan are higher than those under a floating-rate mortgage plan.

 

In principle, the monthly payout amount will remain constant or increase over the payment term, depending on the annual review of the death benefits of the life insurance policy.

 

Example of monthly payout amount (HK$)

 

Age of borrower

65

Gender of borrower

Male

Death benefits of life insurance policy

$2 million

Monthly payout amounts*

Payment term

10-year

15-year

20-year

Life

Floating-rate mortgage plan α

$4,393

$3,441

$3,036

$2,793

Fixed-rate mortgage plan β

$5,194

$3,998

$3,480

$3,157

* The above monthly payout amounts are based on a specific life insurance policy of a well-known insurance company and are for illustration purpose only. The actual monthly payout amount for individual life insurance policies may vary.

 

a The above monthly payout under the floating-rate mortgage plan is calculated at the interest as at 30 June 2021 (i.e., the Hong Kong Prime Rate minus 2.5% p.a.), and is for reference only. The floating interest rate and the Hong Kong Prime Rate will be determined by the HKMCI and the HKMC from time to time respectively.

 

β The above monthly payout under the fixed-rate mortgage plan is calculated at the interest rate of 4% p.a. for the first 25 years and the Hong Kong Prime Rate minus 2.5% p.a. thereafter, and is for reference only. The fixed interest rate and the Hong Kong Prime Rate will be determined by the HKMCI and the HKMC from time to time respectively.

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Costs

Costs

Interest expense

Policy 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 two parts and the amount payable by the borrower will be debited to the outstanding loan amount:

 

(1) Upfront Mortgage Insurance Premium is 1% of the specified policy value, payable by 5 annual instalments on the 1st, 13th, 25th, 37th and 49th monthly payout dates respectively. Each annual instalment is calculated at 0.2% of the specified policy value under the policy reverse mortgage loan.

 

(2) Monthly Mortgage Insurance Premium is payable on a monthly basis at the annual rate of 1% of the outstanding loan amount.

Legal fees

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

Handling fees

A handling fee of HK$1,000 will be charged for each successful application for change of payment term or request for a lump-sum payout, after a policy reverse mortgage loan has been granted. Such handling fees will be debited to the outstanding loan amount.

Other fees and expenses

The borrower will be responsible for the fees and expenses charged by the insurance company of his life insurance policy, if any, for any necessary arrangement relating to the assignment of his life insurance policy.

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General Application Flow

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

 

General Application Flow

Step 1: Pre-assessment

Enquire at a bank direct which will provide the borrower with details (including the Information Pack, Important Notice, Indicative Loan Schedules and Information Sheet) for reference and conduct a preliminary eligibility assessment.

Step 2: Application

After the completion of the preliminary assessment, the borrower may approach a bank to make a formal application.

Step 3: Execution of legal documents

If the formal application is approved by the lender, the borrower will be required to execute the relevant legal documents at the office of the lender’s solicitors.

Enquiry

If you have any enquiries, please contact a bank or call the Policy Reverse Mortgage Programme Hotline for more information.

 
Policy Reverse Mortgage Programme Hotline: 2536 0136

Website: www.hkmc.com.hk

Enquiry E-mail: prm_enquiry@hkmci.hk

General Information

1) List of Banks
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2) Information Pack
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3) Leaflet
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4) Important Notice
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5) Enduring Power of Attorney Leaflet
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