Life after retirement is full of uncertainty, with reduced income but continuing expenses, including medical bills and health insurance premiums. Therefore, how to effectively plan your finances after retirement becomes crucial. Especially for retired people who own property, reverse mortgages and elderly mortgages have become an attractive option. They can provide you with stable annuity income while helping to pay for medical insurance premiums. In this article, we’ll take a closer look at how reverse mortgages and retirement mortgages work, and give you some practical examples to help you better plan for retirement.
Basic concepts of reverse mortgage and retirement mortgage
Reverse mortgages and senior mortgages are financial products designed for people aged 55 or above. They are based on the value of your residential properties in Hong Kong, converting these assets into stable monthly cash flow. You can use your self-occupied property as a mortgage, apply for a mortgage loan from a bank or lending institution, and then receive a fixed annuity every month. Best of all, you can continue to live in this property until your death without having to move out. Because this approach provides a fixed monthly cash income and, unlike a typical home mortgage, you do not have to make monthly payments, it is also known as a reverse mortgage.
One of the biggest benefits of reverse mortgages and senior mortgages is that you don’t have to sell your property and can continue to live in your home while unlocking the value in your property. This is particularly attractive to seniors who only own a home but don’t have sufficient retirement savings. In the past, these elderly people often faced the dilemma of selling or not selling their homes after retirement. Selling a property means losing a place to live, and not selling means having difficulty meeting living expenses. Reverse mortgages and senior mortgages are designed to solve this problem. Another important advantage is that seniors who apply for a reverse mortgage or senior mortgage do not need to repay until they reach their 100th birthday. Thereafter, the heirs can choose to pay off the mortgage in full to redeem the property, otherwise the lender will sell the property to pay off the mortgage and return the balance to the heirs.
Application qualifications and requirements for reverse mortgage and retirement mortgage
To apply for a reverse mortgage or retirement mortgage, there are some basic qualifications and requirements to consider:
qualifications:
- Age: Usually you need to be 55 years or older, but if your property is being sold without land premium assistance, you need to be 60 years or older.
- Identity Card: You need to hold a valid Hong Kong Identity Card.
Property requirements:
- Residential property: Your property must be a residential property in Hong Kong.
- Resale Restrictions: The property must not have any resale restrictions.
- Rental properties: Rental properties are generally not allowed, but permission to rent can be applied for in special circumstances.
- Age of building: The age of the property must be less than 50 years.
Amount requirements:
- Property value: Depending on the value of the property, the amount you can borrow varies. If the property value is below HKD 8 million, you can obtain a property valuation of 100%. For properties above HK$8 million, the amount you can borrow is HK$8 million plus 50% for the portion exceeding HK$8 million, with a maximum limit of HK$25 million.
Reverse mortgage and retirement mortgage annuity amounts
The annuity amount for reverse mortgages and retirement mortgages depends primarily on several factors, including the property value, the age of the applicant, the annuity term and the mortgage interest rate. The following is a reference for annuity amounts for two different mortgage plans:
Adjustable Rate Mortgage Scheme (Based on the property value of HKD million, calculated based on the annual interest rate as of July 31, 2023)
| age | Annuity term | Single | two people | three people |
|---|---|---|---|---|
| 60 years old | 10 years | $3,700 | $3,300 | $3,000 |
| 70 years old | 10 years | $5,100 | $4,600 | $4,200 |
Fixed rate mortgage plan (based on the property value of one million Hong Kong dollars, calculated based on the annual interest rate of 4% for the first 25 years and the Hong Kong best interest rate minus 2.5% for subsequent years)
| age | Annuity term | Single | two people | three people |
|---|---|---|---|---|
| 60 years old | 10 years | $4,070 | $3,630 | $3,300 |
| 70 years old | 10 years | $5,610 | $5,060 | $4,620 |
These figures are for reference only and actual annuity amounts may vary and are subject to change based on prevailing market conditions and interest rates.
How to choose a suitable retirement mortgage term
Choosing the right senior mortgage term depends on your specific needs and circumstances. Here are some considerations:
- Monthly Expenses: First, you need to consider your monthly expenses and other sources of income. If you need more monthly annuity payments, consider choosing a shorter annuity term for a higher annuity amount. According to experience, property values tend to increase over the long term, and you can wait for the property to appreciate before extending the annuity period of your retirement mortgage.
- Long-term planning: If your monthly expenses are relatively low, or you have other income or assets, you can choose a longer annuity term, or even a lifetime annuity, to ensure that you always have income.
- Estate planning: If you want to leave your property to the next generation, or don’t want to pass on debt to the next generation, a retirement mortgage may not be the best option. Because mortgage plans have interest costs, and current annuity amounts may not be attractive. In this case, you might consider renting out another property.
Another factor to consider is the age of the property, as the maximum age limit for residential mortgage loans is 50 years.
Procedure for applying for an elderly care mortgage
Applying for a senior citizen mortgage requires some procedures and steps:
Step 1: Contact participating institutions
Before formally applying, you should contact a participating institution to learn the details of the program. These participating agencies will conduct an initial assessment of your eligibility. Please remember that you do not need to go through any intermediary to apply for a retirement mortgage loan, and you can check the list of participating institutions of the retirement mortgage scheme at the Hong Kong Mortgage Corporation Limited.
Step Two: Counseling
Since people applying for elderly mortgages are usually the elderly, in order to ensure that they clearly understand the application procedures and matters needing attention, they need to make an appointment to meet with a qualified counselor. During the counseling period, the counseling consultant will explain in detail the characteristics of the elderly mortgage loan and provide the main rights, responsibilities and legal consequences of the elderly mortgage loan. After successfully completing residential mortgage counseling, you will receive a counseling certificate before you can proceed to the next step.
Step Three: Formal Application
After obtaining the counseling certificate, you can formally apply for an elderly care mortgage. At the same time, borrowers must complete a health questionnaire provided by the mortgage insurance company before the loan origination date. Once your application is approved, you can sign the mortgage documents and other related legal documents.