Singapore’s largest lender DBS has launched a home equity loan that allows senior citizens to top up their Central Provident Fund (CPF) retirement savings by borrowing against their fully-paid private residential properties.
The DBS Home Equity Income Loan, which has a fixed interest rate of 2.88% a year, is open to Singaporeans and permanent residents between 65 and 79 years of age who have insufficient retirement funds.
The loan period can be up to 30 years until the client – or the youngest borrower in the case of a joint loan – turns 95 years old, DBS says in a statement on August 16.
It’s similar to a reverse mortgage, except that the money goes into the CPF Life annuity scheme instead of directly to the borrower.
The maximum that can be borrowed is the amount that a client needs to reach the current CPF Enhanced Retirement Sum, which is S$279,000 (US$205,165) for 2021 and S$288,000 for 2022. This sum, which comes under the CPF Life annuity scheme, is the top-up ceiling for CPF members and is adjusted every few years to reflect current retirement needs of Singaporeans.
According to DBS Singapore Group Executive and Country Head Shee Tse Koon, the average homeowner above 50 years old in Singapore holds around 60% of wealth in housing equity. He says many senior homeowners prefer to remain in their own homes and be in familiar surroundings.
“DBS Home Equity Income Loan was introduced as an option to help seniors unlock the value of their homes safely, and we adopted a collaborative approach to come up with this solution,” he says in the statement.
The home equity loan will be useful for asset-rich CPF members because it gives them an additional option to improve their retirement income, according to a fund manager from a Singapore asset management firm.
“However, the scheme is not attractive as I feel that the interest rate they are charging is on the high side. But if more banks start to offer similar products, the interest rate may decline,” he tells Asia Asset Management, speaking on condition of anonymity.
