On 15 May 2021, Datuk Chung Chee Leong, the President and Chief Executive Officer of Cagamas Berhad (the National Mortgage Corporation of Malaysia) (‘Cagamas
’) announced that Cagamas would launch its reverse mortgage scheme later that year to address income insecurity for the elderly.1
Arising from this announcement, we published ‘The Reverse Mortgage – A Godsend or a Millstone?
’, an article which provides an overview on reverse mortgages.
On 14 December 2021 Cagamas launched the Skim Saraan Bercagar
’). The SSB is Malaysia’s first reverse mortgage scheme for retirees and is backed by an initial funding of RM100 million. The SSB has been made available to applicants in the Greater Klang Valley from 17 January 2022 and will be available to applicants nationwide by mid-2022.2
In this article, we highlight some of the salient features of the SSB.3
What is a reverse mortgage?
To recap, as mentioned in our earlier article, a reverse mortgage is similar to a conventional home mortgage in that it is a loan that is secured against immovable property. However, unlike a conventional mortgage, a reverse mortgage does not require the homeowner to make any loan repayments during the tenure of the mortgage. Instead, the entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home.
Who is eligible to apply for a loan under SSB?
A borrower under SSB must be:
A leasehold property may be accepted as security under the SSB if it satisfies one of the following criteria:
If either of the above criteria is not satisfied, the borrower may have to renew the lease to be eligible.
How much loan can be obtained?
The amount of the loan depends on the borrower’s age (the age of the youngest borrower will be used) and the property value, location and type.
How is the SSB loan disbursed?
As a general rule, the borrower or joint-borrowers will receive a fixed monthly payment throughout their life or lives, as the case may be; the guiding principles being that the older the borrower, and the higher the property value, the higher the amount of monthly payment.
The Cagamas website suggests that a one-time lump sum payment together with monthly cash disbursements is also available. Although information has not been provided by Cagamas as to the purposes for which a lump-sum disbursement of a SSB loan will be allowed, the President and Chief Executive Officer of Cagamas has said that a lump-sum payment at the inception of the SSB loan may be permitted to enable a borrower to settle any outstanding loan on the property, or for other purposes related to the property, such as maintenance and upkeep.5
Thus, any hope that a lump-sum payment may be used to indulge in a little luxury, like going on a world cruise on the QE-2 is likely to be wishful thinking.
When is the SSB loan to be repaid?
The obligation to repay a SSB loan arises only upon the demise of the borrower or the last surviving of the joint-borrowers. No repayment of principal or payment of interest is required during the lifetime of the borrower or, in the case of a joint-loan, the last surviving joint borrower unless the loan is terminated in specific circumstances6
Interestingly, upon the demise of the borrower (or the last surviving borrower in the case of joint-loan), interest will cease to accrue on the loan as from the date of the last disbursement of the monthly payment.
How is the SSB loan to be repaid?
The next-of-kin will be given the opportunity to settle the outstanding amount of the SSB loan. If the next-of-kin settles the loan, the property will be transferred to the estate of the deceased borrower.
However, if the next-of-kin decides not to settle the SSB loan, Cagamas will dispose of the mortgaged property and use the proceeds to settle the outstanding loan. After the loan has been repaid, any surplus of the sale proceeds will be paid to the deceased borrower’s estate.
What happens if the proceeds of the sale of the mortgaged property are insufficient to repay the loan in full?
A SSB loan is made by Cagamas on a without recourse basis. This means that the borrower’s estate will not be liable for any shortfall in the event that the proceeds of the sale of the mortgaged property are insufficient to re-pay the outstanding amount of the loan.7
Can a SSB loan be terminated by the borrower?
Yes, it can by paying off the total outstanding amount of the loan.
Will the SSB loan be terminated by Cagamas if the borrower ceases to reside in the mortgaged property?
The SSB loan will not be terminated by Cagamas under specified circumstances if the borrower moves out of the mortgaged property during the tenure of the SSB loan. However, it must be due to medical or health conditions with proof of medical certification. Each circumstance will be considered on a case-by-case basis.
What happens if a husband and wife who are joint-borrowers undergo a divorce during the tenure of their SSB loan?
They will need to discontinue the SSB loan and settle the outstanding loan amount, if necessary through the sale of the mortgaged property. So sorry, folks … you’ll have to remain wedded to your spouse so long as you remain indebted under a SSB loan.
What are the costs that a borrower will incur to obtain a SSB loan?
According to Cagamas, some of the costs that will be incurred by a borrower are legal fees, valuation fees, property insurance, administration fees (if any) and service fees (if any).8
These expenses can be financed through the SSB loan.
In addition, as in the case of a conventional loan, the borrower is required to maintain fire and home insurance throughout the tenure of the loan.
Stamp duty at the rate of 0.5% of the principal amount of a SSB loan is payable on the reverse mortgage (or in local parlance, the land charge or deed of assignment). However, to reduce the financial burden to borrowers, the Minister of Finance, Senator Tengku Datuk’ Zafrul Tengku Abdul Aziz, announced on 14 December 2021 that the Government will exempt transaction documents under SSB from stamp duty for two years from the launch of SSB.
Special offers for pilot launch
Cagamas has announced that for the pilot launch of the SSB, loans will be offered at a fixed rate financing of 5% per annum on the outstanding loan amount and a one-time upfront recourse waiver fee of 1.75% of the initial property value.9
How does one apply for a SSB loan?
Interested applicants may contact the Kuala Lumpur Branch (Jalan Raja Laut, Kuala Lumpur) or the Petaling Jaya Services Counter (PJX-HM Shah Tower, Persiaran Barat, Petaling Jaya) of the Employees Provident Fund, or visit Cagamas’s SSB website at email@example.com
The concept of reverse mortgages is not new and have been in existence for some time in other jurisdictions, such as the United States of America, the United Kingdom, Australia, South Korea, Hong Kong and Singapore, with varying degree of success.
Nevertheless, the introduction of reverse mortgages in Malaysia is to be lauded as it provides an alternative and novel means of financing for senior citizens who own immovable property without the attendant burden of worrying about meeting loan repayments.
Article by Jesy Ooi (Partner) and Oon Hooi Lin (Partner) of the Real Estate Practice of Skrine.