Reverse mortgage (retirement mortgage)

What is the Reverse Mortgage Scheme?

Reverse Mortgage SchemeReverse Mortgage (also known as "reverse mortgage" or "reverse mortgage loan") is a financial product designed by the Hong Kong Government for the elderly and launched by the Hong Kong Mortgage Corporation Limited (HKMC) in 2011. The core concept is to allow elderly people who own properties to mortgage their properties to banks in exchange for regular payments (such as monthly cash, a lump sum loan or a line of credit) to supplement their income after retirement. The elderly can continue to live in the original property until they die or move out permanently, after which the bank will dispose of the property to repay the loan and interest.

Retirement mortgages are a double-edged sword of “using housing to support retirement”: they can ease the financial pressure on the elderly, but they may also weaken inheritance. Before making a decision, you need to fully assess your personal health, family needs and property market prospects, and make sure you understand all the details of the terms to avoid falling into a financial or passive situation in your later years.

Reverse mortgages are suitable for homeowners who wish to "revitalize" their property assets to improve their retirement life, but a comprehensive assessment of financial needs, family planning and long-term risks is required. It is recommended to consult a professional financial advisor or lawyer before applying.

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Reverse Mortgage SchemeEligibilityandHow it works

1. Eligibility:
   Usually applicable to Hong Kong permanent residents aged 55 or above (subject to bank terms) who own unmortgaged residential properties.
   If the mortgaged property is Subsidized housing with no land premium paid(such as Home Ownership Scheme flats and Tenants Purchase Scheme flats), applicants must be at least 60 years old or above.
   
2. Financial requirements :
   Applicants must No bankruptcy record,and No bankruptcy petition proceedings.
   Not allowed Debt restructuring (IVA) Or similar financial agreement.
   
3. Property Requirements :
   Property type: Must be from Hong Kong Residential Properties(private residence or subsidized housing).
   Building age restriction：The property must be of age 50 years or below. If the building is over 50 years old, some agencies may require submission of a building inspection report.
   Use Status：The property must be Self-occupied use, not rented out or vacant, and No resale restrictions(such as the "Additional Stamp Duty" lock-in period).
   Special Provisions for Subsidized Housing: Subsidized housing without land premium must first obtain Written approval from Housing Authority/Housing Society.
   
4. Joint application
   Accept up to 3 eligible owners Joint applications are usually filed by spouse, children or relatives.
   The property must be Joint Tenancy All owners need to sign the mortgage agreement together.
   
5. Company-owned properties
   If the property is Hong Kong registered limited company The company can be the applicant, but must meet the following conditions:
   The company has a simple equity structure (e.g. a family company);
   All shareholders and directors agree to the application;
   Provide proof of company registration and financial status documents.
   
6. Property Valuation :
   The loan amount depends on the property valuation, applicant's age and selected Annuity Plan(Monthly payment, lump sum or mixed mode).
   
7. Mortgage property:
   The elderly mortgage their property to a bank participating in the program, and the bank calculates the monthly payment based on factors such as property valuation, applicant age, and interest rate.
8. How to receive:
   You can choose lifetime payment, fixed term (such as 10 years, 20 years) or a mixed model.
   
9. Repayment terms:
   When the elder dies, moves out permanently, or sells the property, the bank will sell the property to repay the loan principal, interest, and related fees. If the sale proceeds exceed the debt, the remaining amount will go to the heirs of the estate; if the sale proceeds are less, HKMC will bear the difference (the bank has no recourse).

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Analysis of the advantages of reverse mortgage

Stable retirement income

• Converting "real estate" into "liquid capital" can solve the problem of insufficient cash flow for the elderly, especially for those who have no children to support them or have limited savings.
• Payments can be made in fixed monthly amounts to help with daily expenses or medical bills.

Retain residency rights

• The elderly do not need to move out of their original residence, thus maintaining their quality of life and avoiding the pressure of rent increases or relocation after selling their property.

Flexible financial arrangements

• Choose a lump sum loan (such as for emergency medical expenses) or a line of credit to draw funds as needed.
• If you choose to receive benefits throughout your life, the longer you live, the more you will receive, which is more beneficial for those who live longer.

The risk is partially borne by the government

• HKMC provides an insurance mechanism. If the property depreciates and is not enough to repay the loan after it is sold, the difference will be borne by HKMC and the heirs will not need to pay compensation.

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Potential drawbacks of reverse mortgages

Accumulated interest erodes the value of the estate

• The interest on the loan will compound over time, which may significantly reduce the final residual value of the property and affect the rights of the heirs. If the elder dies in the near future, the heirs may need to repay the loan in advance to retain the property.

Risk of property value fluctuations

• If the property market falls, even with the protection of HKMC, the heirs may still lose the property or only receive a small amount of remaining assets.

High early termination costs

• If the elderly want to redeem the property midway (e.g. due to family reasons), they will need to repay the principal plus interest in one lump sum, which may be difficult to achieve due to insufficient funds.

May affect social welfare eligibility

• Regular payments may be regarded as income and affect your eligibility for Old Age Living Allowance or Comprehensive Social Security Assistance.

Family dispute risks

• If there is not sufficient communication with family members, conflicts may arise among the heirs over property disposal issues.

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Suitable for and precautions

• Suitable：Elderly people who have no children, need a stable cash flow, have high property value but few other assets.
• Not suitable: Those who plan to leave the property to their children or anticipate that they will need to use the property in the short term.

Important recommendations:

1. Carefully calculate the balance between long-term interest costs and the amount to be paid (you can use the simulation tool provided by the bank).
2. Communicate fully with family members and seek independent financial or legal advice.
3. Compare the terms of different banks (such as interest rates, fees, flexibility, etc.).

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Calculation formula and steps

1. Determine the mortgage principal (P)
   • Property Valuation (V):
     • If V≤800V≤8,000,000 HKD:
       P=V×100%P=V×100%
     • If 8008 million < V ≤ 2500 V ≤ 25 million Hong Kong dollars:
       P = 800 × 100% + (V − 800) × 50%P = 800 × 100% + (V − 800) × 50%
     • If V>2500V>HKD25 million:
       P = 800 + (2500-800) × 50% = 16.50 million Hong Kong dollars
2. Determine the number of payment periods (n)
   • Annuity Period: Select a fixed number of years (such as 10 years, 15 years), or estimate the remaining life expectancy based on the applicant's age (such as an 80-year-old's life expectancy of 15 years, n=15×12=180 months).
3. Select a rate plan
   • Floating interest: Linked to market interest rates (such as HIBOR) and changes monthly.
   • Fixed interest: A fixed interest rate, which is usually higher than the initial interest rate of a floating rate plan, but is stable over the long term.
4. Calculate monthly annuity (M)
   usePresent value formula, amortize the mortgage principal PP into monthly payments: M=P×r1−(1+r)−nM=P×1−(1+r)−nr​
   • rr: monthly interest rate (annual interest rate ÷ 12)
   • nn: total number of payment months

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Key factors affecting

• Property Valuation：V↑⇒P↑⇒M↑
• Annuity Period：n↓⇒M↑n↓⇒M↑ (the shorter the payment period, the larger the monthly payment)
• Applicant's age：Age↑⇒n↓⇒M↑
• Rate Plan: Fixed interest usually uses a lower interest rate r↓⇒M↑r↓⇒M↑, so the monthly annuity is higher.

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Example calculation

Case parameters

• Property valuation: HK$12 million
• Annuity period: 15 years (n=180 months)
• Applicant age: 75 years old
• Interest rate plan: Fixed interest (annual interest rate 3% → monthly interest rate 0.25%)

step

1. Mortgage principal (P)：P=800×100%+(1200−800)×50%=800+200=10 million Hong Kong dollars
2. Monthly Annuity (M)：M=10,000,000×0.00251−(1+0.0025)−180M=10,000,000×1−(1+0.0025)−1800.0025​
   • Calculate the denominator:
     (1.0025)−180≈0.644, so 1−0.644=0.356
   • Result: M≈10,000,000×0.0025/0.356≈HKD 70,225/month

• High property value, short-term annuity, elderly applicants, fixed-rate plansWill significantly increase monthly annuity payments.
• The actual calculation needs to be adjusted according to the interest rate and actuarial model provided by the bank. It is recommended to consult a professional institution to obtain an accurate quote.

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Frequently Asked Questions

The following events will constitute a suspension event:

(a) you breach the relevant government lease or building deed of mutual covenant;
(b) you have not paid management fees, rates and government rent, etc.;
(c) you do not have insurance for fire and other serious damage to the property;
(d) your failure to properly maintain the Property and keep it in good condition;
(e) your failure to comply with any laws, rules and regulations relating to the Properties;
(f) You have failed to comply with any order or notice issued by any government authority or building manager in relation to the property.
Know;
(g) you fail to provide the required Annual Statements in respect of your property;
(h) You have established a loan for any beneficiary (other than the lending institution under the relevant Reverse Mortgage Deed);
any charges or other interests in your property unless you have first obtained
written consent of the
(i) any act or omission on your part which adversely affects the value of the Property or damages the
the security interest under the relevant Reverse Mortgage Deed; or
(j) You breach any of its obligations under the relevant Loan Agreement or any relevant legal documents;
or provide any incorrect or misleading information to a lender in relation to a reverse mortgage loan.
material.
Remark:
If you have more than one property as collateral for your reverse mortgage loan, any
Any suspension of the property will constitute a suspension of your entire mortgage loan

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Expiration Events

The following events will constitute an Expiration Event when they occur:
(a) you rent out your property without the written consent of your lender;
(b) you and all co-borrowers of your reverse mortgage loan (if any) have passed away;
(c) You or any of your co-borrowers (if any) on your reverse mortgage loan have been adjudicated
is bankrupt, or is subject to an individual voluntary arrangement;
(d) if the suspension may be corrected and you fail to do so within 6 months of the suspension
Correct it within;
(e) an event of suspension occurs which cannot be corrected;
(f) your property is repossessed by the Hong Kong Government or any relevant authority;
(g) the Government lease in respect of your property is terminated without renewal;
(h) any competent person has determined in writing that your property can no longer be safely occupied;
(i) your property or the building on which your property is situated has collapsed completely or substantially;
(j) your property is compulsorily sold and the sale is completed;
(k) the joint ownership of your property has been divided; or
(l) You voluntarily surrender vacant possession of the property to the lender.
Remark:
If you have more than one property as collateral for your reverse mortgage loan, any
The maturity events of the property will constitute the maturity events of your entire retirement mortgage loan.