Wed, Oct 07, 2009 - Page 8 News List

A smart initiative for the elderly

By Chang Chin-o and Yuan Shu-mei 張金鶚,袁淑湄

Seeking to enable the elderly to have adequate money to pay their health insurance fees, Department of Health Minister Yaung Chih-liang (楊志良) has proposed the concept of reverse mortgages.

This idea has long been supported by academics researching real estate. Financial Supervisory Commission Chairman Sean Chen (陳冲) has also said the nation could soon start emulating the practices of Western countries and formulate a system for reverse mortgages.

With Taiwanese society aging, reverse mortgages have generated a great amount of interest.

Reverse annuity mortgages are a type of mortgage payment administered by financial institutions to the elderly, with the amounts disbursed based on the value of the property they own. As the elderly receive money from financial institutions each month, the system is akin to an old-age pension plan.

Reverse annuity mortgages have been used in the US for a while and the US has a certain level of experience implementing them. Applicants there must be house owners above 62 years of age. Applicants can apply with financial institutions for a mortgage loan based on the value of their house. On passing an evaluation, the home owner can choose whether to receive a one-off payment in cash, cash payments each month or a combination of these two options. The date of termination of the home loan is when the borrower sells the house, dies or lives in another residence for more than one year. If a borrower sells his house and the sale price is higher than the original loan, the difference belongs to the borrower. If the sale price is lower than the loan, financial institutions cannot collect debt from the borrower or their children. According to data released by the US Department of Housing and Urban Development, the US had more than 110,000 reverse mortgage clients last year.

While Taiwan has a high home ownership rate, many elderly have real estate but no money to live on. Such people often have to ask their children to cover their living expenses. If their children are less than filial, this often leads to argument. After the elderly die, their children inherit their real estate assets and enjoy the wealth that took their parents a lifetime of hard work to build.

It is also hard for the elderly to ask their children to help cover their living costs in a dignified manner. The mechanism proposed above would allow the elderly to rely on themselves while ensuring they retain their dignity.

For example, if a 65-year old owns a house worth NT$5 million (US$155,000), with a standard loan of 60 percent of that value, that person would be able to take out a mortgage of NT$3 million. Based on Taiwan’s average life expectancy of 79 years and at an annual interest rate of 2 percent, this person could receive approximately NT$20,000 per month until he or she passes away.

Aside from adopting this mortgage loan concept, Taiwan could also adopt the zero net present value concept. This would involve elderly people selling their real estate assets to insurance companies and then renting back from them, similar to the sale-leaseback mechanism commonly used in real estate. By doing so, the elderly would not have to move house, while their insurance company would be responsible for repairs and management of their house. Beneficiaries could also use the money insurance companies hand them each month to cover living costs.

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