Reverse mortgages scheme existed with a great deal to aid retirees to unlock the cash value of their residences for more than a decade, but now, it will be the main focus of an impending court case.
Derek Chua and his wife Colleen Ng charged a legal case against their insurer NTUC Income after they felt unease about their reverse mortgage scheme.
The Straits Times has obtained the writ of summons, which stated the couple affirmed strongly that the scheme entitled them to remain in their property until their last days or if it was already sold. They also affirmed that the insurer should not oblige them to make a repayment of their loan if it exceeded 80 percent of the market value of their property.
After the launch of the reverse mortgage scheme in 1997, it was perceived by the Government as an income generating plan for retirees, which they can use to earn profits from their residences without moving to another home.
It offered a stream of income for several cash-poor but asset-rich elderly people. A retiree can utilize his own home as a security for the loan that will be released in monthly payouts.
Under the reverse mortgage scheme, the lender would regularly recover the money it had disbursed through selling of the property after the death of the borrowers, and any surplus will directly go to the estate.
The asset, which they purchased in 1975, has reached $2.1million in 1997. This granted NTUC Income to provide them with a loan of up to 80 percent of the value or around $1.68million.
However, things became unpleasant when the prices of the property had gone down after the occurrence of Sars in 2003. The valuation of their home was virtually divided to $1.1million in 2004, and they were informed by the insurer that their loan was attaining its 80 percent limit. As an outcome, the couple’s payouts every month were successively cut from $2,000 to $300 in 2004 to 2006, respectively.
In June 2006, they were informed that the amount of their loan exceeded the 80 percent market value of their property. Their monthly payouts were stopped the next month.
Afterwards, they owed NTUC Income about $1.05million, including an amount of $495,000 in order to make their overdraft, as well as their monthly payouts and the combined interest on the payouts. It turned out to be necessary to put the property for sale in order to retrieve the amount.
The couple said that NTUC Income got a purchaser, who was able to pay $1.05million in November 2006, but a shortfall of $55,000, still remained, forcing Mr. Chua to pay for it every month for 10 years.
The couple began to make these monthly payments until recently when they both decided to file a case against their insurer for an alleged violation of contract.
Nicholas Mak, former research head at Knight Frank, believed it was not surprising that this scheme has ended weakly, as its achievement only relied on “many factors, plus the market size and its culture”.
He also said that a latest HDB initiative known as the lease buyback system has largely substituted the reverse mortgage scheme. However, this is only available to elderly people, who reside in three-room houses or in smaller apartments and it monetises these flats to earn annuities.