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Unlocking Home Equity: Understanding Skim Saraan Bercagar (SSB) Reverse Mortgage

As Malaysia’s population ages, many seniors are faced with the challenge of ensuring financial security during retirement as it is no longer a secret that most Malaysians do not have sufficient savings in EPF. For homeowners aged 55 and above, reverse mortgage presents a unique opportunity to leverage the equity in their homes to supplement their retirement income. In this comprehensive guide, we’ll delve into the concept of reverse mortgage in Malaysia, its mechanics, benefits, potential drawbacks, and considerations for interested homeowners.

Understanding Reverse Mortgage in Malaysia:

Reverse mortgage is a financial product tailored for Malaysian citizens or permanent residents aged 55 and above who own a freehold property or leasehold property with remaining lease tenure not less than 90 years. It allows eligible homeowners to convert a portion of their home equity into cash without having to sell their property or make monthly repayments. The scheme is regulated by Bank Negara Malaysia (BNM) and administered by participating financial institutions.

How Does Reverse Mortgage Work?

1. Eligibility and Application: To qualify for reverse mortgage in Malaysia, homeowners must meet certain eligibility criteria, including age, property type, and ownership status. Upon meeting the requirements, homeowners can apply for reverse mortgage through participating banks or financial institutions.
2. Property Valuation: Once the application is submitted, the property undergoes a valuation process to determine its market value. The maximum loan amount that can be obtained through reverse mortgage is calculated based on factors such as the appraised value of the property, the homeowner’s age, and prevailing interest rates.
3. Disbursement of Funds: Upon approval, the homeowner can choose to receive the loan proceeds as a monthly payment. The funds can be used to cover living expenses, healthcare costs, home renovations, or other financial needs.
4. No Repayment Required: Unlike traditional mortgages, reverse mortgage borrowers are not required to make monthly repayments. The loan is repaid only when the homeowner permanently moves out of the property, sells the home, or passes away. At that time, the loan balance, including accrued interest and fees, is settled through the sale of the property, with any remaining proceeds going to the homeowner or their estate.

Benefits of Reverse Mortgage in Malaysia:

1. Supplemental Income: Reverse mortgage provides seniors with a valuable source of supplemental income during retirement, allowing them to maintain their standard of living and cover expenses apart from depending on their EPF and savings.
2. Security of Homeownership: Reverse mortgage allows homeowners to access the equity in their homes while retaining ownership and the right to live in the property for as long as they choose. This provides a sense of security and stability during retirement.
3. No Negative Equity Guarantee: In Malaysia, reverse mortgage comes with a “no negative equity guarantee,” which means that the homeowner or their estate will not be required to repay more than the value of the property at the time of repayment. This protects the homeowner and their heirs from owing more than the property is worth.
4. Tax Free: The money you receive monthly is not taxable!

Considerations and Potential Drawbacks:

1. Accrued Interest: The loan balance of a reverse mortgage increases over time as interest accrues on the principal amount borrowed. This can reduce the equity available to heirs when the loan becomes due.
2. Fees and Charges: Reverse mortgage transactions may involve fees and charges, including valuation fees, legal fees, administrative fees, and insurance premiums. These costs can impact the overall cost of the loan and should be carefully considered.
3. Impact on Heirs: Upon the homeowner’s death or when the property is sold, the loan balance, including accrued interest and fees, must be repaid. Depending on the circumstances, this repayment obligation may impact the inheritance received by heirs.

Conclusion:

Reverse mortgage by Cagamas offers a valuable financial tool for Malaysian seniors seeking to unlock the equity in their homes to supplement their retirement income. While it provides flexibility, security, and peace of mind, it’s essential for homeowners to carefully consider the terms, costs, and potential implications before proceeding with a reverse mortgage arrangement. Consulting with a qualified financial advisor and exploring alternative options is advisable to ensure that reverse mortgage aligns with one’s long-term financial goals and circumstances. With careful consideration and proper planning, reverse mortgage can be a valuable resource in achieving financial stability and security during retirement in Malaysia. As for Millennials and Gen Z, RUMAWIP offer best value for your money and with it’s low monthy loan repayment it is a practical option to be purchase as a first home and upon paying off it; you can opt for a Reverse Mortgage if EPF savings is not sufficient for retirement life.

Please take note, IT IS ONLY APPLICABLE IF YOUR RUMAWIP IS FREEHOLD.

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Elijah is an esteemed real estate agent who has dedicated his expertise to the RUMAWIP program since 2018. With a reputation for unwavering honesty, he navigates the real estate landscape with straightforwardness and analytical insight. Alongside his role as a real estate agent, Elijah shines as a marketing consultant collaborating closely with RUMAWIP developers. His dual perspective and commitment to affordability make him a trusted figure in the industry, consistently guiding clients and stakeholders toward informed decisions and successful outcomes.