New DBS loan lets seniors with private property use their homes to fund their retirement

SINGAPORE – Asset-rich, cash-poor retirees can take up a new loan with a fixed interest rate against their private property – while still living there.

Launched on Monday (Aug 16), the DBS Home Equity Income Loan allows seniors to top up their Central Provident Fund (CPF) retirement sums – which will be used for their CPF Life payouts – by borrowing against their fully paid private residential properties.

This reverse mortgage loan is open to Singaporeans and permanent residents aged 65 to 79 who have insufficient retirement funds.

The maximum amount that can be borrowed by an individual is the amount he needs to reach the current CPF Enhanced Retirement Sum, which is $279,000 this year.

The loan period can be up to 30 years till the customer – or the youngest borrower in the case of a joint loan – reaches 95 years old, with a fixed interest rate of 2.88 per cent a year.

Ms Tok Geok Peng, DBS Singapore consumer banking group head of home financing, said: “This product is designed for the group of seniors who own private residential property but are in a situation where they don’t have sufficient retirement income.

“So we want a solution that could permanently increase their retirement income, and CPF Life is a good instrument for them to do so.”

There will be no monthly loan repayments, with the lump sum payable only at loan maturity. Customers can also sell their property any time and repay the loan without a penalty fee.

The fixed interest rate also gives seniors certainty of how much they must pay back at the end, Ms Tok said.

“One thing we are mindful of is the customers that are coming on board are seniors who are not generating active income, so we don’t want them to be leaving a debt for the next generation.”

A home advice specialist will help applicants work out the loan amount. DBS will also guide the customer in applying to the CPF Board to increase their CPF Life payouts, after the top-up has been made.

At the end of the loan period, customers can pay back the lump sum by selling the property when it is no longer needed and they are ready to move in with their children, for instance.

If they choose to leave the property to their children, proceeds from other assets can also be used to pay off the loan.

If the loan is terminated early due to the customer’s death, for instance, DBS will look at alternative terms of repayment, instead of immediately repossessing the home.

DBS will also reach out to customers and their family members a year before the loan matures to remind them to plan their finances ahead of time.

Ms Tok said: “We encourage customers to take time to understand this product, assess their needs to see if the product suits them and discuss it with their family members.”

CPF Board said it welcomes the new loan product, which will allow private property owners to age in place while having the option of unlocking their housing equity and receiving higher retirement payouts.

It noted that the Government also has other options such as the Lease Buyback Scheme to help those with Housing Board (HDB) flats to supplement their retirement income.

The scheme allows CPF members to sell part of the flat’s lease to HDB, with proceeds used to top up their CPF Retirement Account.

The CPF Board further noted that the loan amount will go towards CPF Life premiums, which earn a higher interest rate of 4 per cent a year currently.

“The combination of (the loan) and CPF Life is therefore an attractive reverse mortgage product, a first in Singapore,” it said.

“We look forward to seeing other banks launch similar loans to complement the housing monetisation options offered by the Government to HDB flat owners, so that more CPF members can enjoy the benefits of CPF Life and have a secure retirement.”

It added: “As with all important financial decisions, CPF members should understand the nature of the product, and assess their risk tolerance and retirement needs before deciding if it is appropriate for them.”