Reverse Mortgage: financial innovation for the elders
By: Nipaphan Poonsatiansup CFP® Freelance financial planner, writer and lecturer.
At present Thailand is at the transforming era from an aging society to the aged society, comprising of over 20% population in 2021 at the age of 60 years and older. More than 10 million Thai people, approximately 15% of the population, are 60 years old and over with a trend to live longer which more or less affect savings for the post-retirement living support.
Accordingly, the government starts launching new policies to support the olds which include Reverse Mortgage (housing mortgage for the olds), a new alternative financial product for elder people. The term Reverse Mortgage refers to the alternative home buying to replace the regular way of financial support from a bank loan in lump sum, then paying back monthly for the agreed upon period, whereas the reverse mortgage is to pre-sell the bought home to the bank and receive monthly payment from the bank until the buyer (home owner) passing away. Then the bank becomes the home owner for reselling to certain inherited persons or to auction. Therefore, the home owner is entitled to live in the house, as if being the real owner, until the last living day.
Reverse Mortgage was firstly introduced in USA during 1988 as viewed by the state that since there were many old owners this would be an alternative to enable retirees to live on their own money until their last days. Then the eligible descendent shall be firstly allowed to redeem the asset prior to auction by which the price margin shall be inherited by the identified heir. In the case of a lower selling price the financial institute shall not be of over burden since there is an insurance policy to take care of any possible margin between indebted and housing value.
The Reverse Mortgage policy is suitable for a smaller family, depending on self-support, which has no need to give assets to inherited children. Followings are conditions of Reverse Mortgage.
In conclusion the reverse mortgage is another tool to help all elders in the Thai society while supporting the public policy to provide welfare for senior citizen since it transforms life-long asset into the retirement fund without asset selling and sparing burden for their children, more or less.
However, following risky issues should be considered by both the financial institute and the borrower
Eventually, the borrower must carefully study the product prior to enter the reverse mortgage contract to ensure the expected requirement. A good financial plan is still in need despite mortgage payment to enhance sufficiency living without more indebted burden so that one would be of a happy life ending.