Sate-run banks have taken the lead in launching reverse mortgages for older homeowners, while their privately run peers have remained on the sidelines because of related credit risks and a lack of government assurances.
Reverse mortgages allow older homeowners to borrow money against the value of their home to fund their retirement.
Since launching reverse mortgages toward the end of last year, state-run Land Bank of Taiwan (土地銀行) has completed 22 transactions totaling NT$165 million (US$4.93 million), while Taiwan Cooperative Bank (合作金庫銀行) has carried out 36 transactions totaling NT$320 million.
In addition, Bank of Taiwan (臺灣銀行) and Hua Nan Commercial Bank (華南銀行) have announced plans to move into the market this year.
The state-run banks are offering reverse mortgages for homeowners aged 60 and older, with home equity released in monthly installments over 25 to 30 years at average interest rates ranging between 2 percent and 2.8 percent.
Although the Civil Code states that loan term periods must not exceed 30 years, homeowners are entitled to alter or extend the maximum period of the loans so that they may continue to live in the same home.
However, non state-run banks have voiced concerns about the risks associated with offering reverse mortgages, especially the length of the loan, a cooling home market and fluctuating interest rates.
To avoid potential disputes, some banks have been hesitant to offer such loans to older people given their complexity, industry observers said.
The Bankers Association of the Republic of China (銀行公會) urged the government to offer more assurances for the industry to develop reverse mortgages, including establishing a new governing body to oversee a fund to cover potential losses by banks and educate older people about reverse mortgages.
The association also asked the government to raise the maximum loan duration from 30 years to 50 years, expand access to the Ministry of the Interior’s census data, and lower capital requirements for real-estate investments as well as provisions against bad loans to provide an environment that is more conducive to the development of reverse mortgages.
Financial Supervisory Commission Banking Bureau Deputy Director-General Jean Chiu (邱淑貞) said that banks should weigh all potential risks when seeking to make profits.
“Pricing is the most important aspect of business transactions and the market will work out an appropriate price for reverse mortgages once there are enough precedents,” Chiu said.
However, the biggest obstacle to the development of reverse mortgages is a lack of acceptance by heirs, many of whom object to taking on the obligations of interest payments when they inherit homes from their parents, Chiu said.
The government has encouraged state-run lenders to provide reverse mortgages for older homeowners amid concern that the nation’s fast-growing aging population might evolve into heavy burdens on social welfare spending.
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