I refer to the letter from Mr Chong Kiam Khiun entitled 'Beware pitfalls of reverse mortgage' (ST, 24 Jul).
NTUC Income offers a reverse mortgage to assist a retiree to receive a monthly income to meet the living expense. The monthly income is taken as a loan charged against a private property and accumulates interest at a modest rate.
The loan is usually repaid at a future date when the retiree sells the property and find another place to live. Alternatively, on death of the retiree, the property is sold to repay the loan and the balance of the proceeds is returned to the estate.
To prevent any misunderstanding on the terms of the loan, we have taken the following measures over the years:
- We explain the working of the reverse mortgage to the retiree
- We ask a family member to acknowledge the retiree's acceptance of the agreement.
- The retiree and a family member have to attend the lawyer's office to execute the agreement
We also send an annual statement to the retiree. Details of the accumulated loan and other particulars, including the prevailing interest rate, are shown in the statement.
In the case quoted by Mr Cheong, the reverse mortgage was taken in 1997. At that time, the agreement was signed in the presence of another family member. Unfortunately, due to the drop in the price of the pledged property, the outstanding loan has reached the 80% level faster than anticipated. The retiree and family member are now discussing with us on the best arrangement to repay the loan. As there is still a buffer of 20%, we have sufficient time over the next two years to work out the best alternative.
The reverse mortgage has been helpful to many people. However, as this example shows, there is a need for the retiree to understand the terms and to make the appropriate adjustment to meet changing circumstances.
Tan Kin Lian
Chief Executive Officer
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