New loan scheme to help seniors unlock an income from their home

Singapore

RETIREES who are asset-rich but cash-poor can consider yet another loan scheme to help them unlock an income in retirement.

AN LIVING, self-described as a "socially conscious enterprise", has rolled out a "home monetisation'' loan scheme to help retirees who worry about outliving their savings.

Homeowners who wish to tap AN LIVING Wealth Access must live in freehold or 999-year leasehold properties, which are unencumbered.

This is believed to be the second home equity loan scheme for private properties. Last year DBS launched the Home Equity Income Loan (DBS EIL), which it said was the first financing solution for seniors with private residential properties. The DBS EIL is also designed to help retirees enhance their income while living in their home.

Nelson Neo, DBS Consumer Bank Group head of home financing solutions, says DBS has received more than 300 enquiries since launch.

"They largely comprise seniors who are looking for options to unlock the value of their existing unencumbered private property, and to leverage this scheme to optimise the returns from CPF Life," he said.

AN LIVING's scheme disburses an interest-free loan for an agreed portion of the home's future sales proceeds, while the homeowner continues to stay in the property. Capital for the loans is understood to come from a fund backed by institutional and accredited investors "who take a long term view of Singapore's real estate market", said AN LIVING founder Jonathan Teoh.

He says AN LIVING is a "for-profit company with a social mission". He will announce details of the fund "in due course". AN LIVING currently has a paid-up capital of S$160,000.

The loan is for a period of 20 years and is calculated based on the property's current valuation. The loan quantum may range between 40 and 80 per cent of the property value, and will also cover fees payable to AN LIVING.

Fees comprise an upfront non-refundable fee of 12.5 per cent based on the current valuation. There is also a 20-year "utilisation fee" of 1.344 per cent per annum of the loan value; and an exit fee of 0.5 per cent based on the exit valuation.

Clients need not fork out a monthly repayment to AN LIVING, as the firm will receive its share of proceeds upon sale of the property. Early exit from the loan agreement will be subject to a "minimum early exit value" based on the initial value of the property, compounded annually at a growth rate of 3 per cent.

To qualify for the scheme, the homeowner must be 55 or older, and satisfy the criteria for accredited investors.

The loan must first be used to top up the senior's CPF Retirement Account up to the prevailing Enhanced Retirement Sum, in order to maximise CPF Life monthly payouts from age 65.

Any excess amount after the top up will be planned and managed by financial advisory (FA) firms. The first firm to join AN LIVING's panel is Providend. Teoh, who is also AN LIVING director (strategy and partnerships), said details of other partnerships will be announced later.

He said: "AN LIVING Wealth Access has been designed to enhance the financial security of seniors living in private properties while allowing them to age in place, in line with Singapore's goals of becoming 'A Nation for All Ages' and a global icon for successful aging.

"The additional monthly boost in CPF and investment payouts from AN LIVING Wealth Access help seniors address the rising costs of living; support healthcare and long term care needs especially for those who are ineligible for insurance; and mitigate seniors' worries that their funds would run out midway through their retirement.''

He said the firm is in discussions to enlist other "reputable FA firms which serve accredited investors'' for its FA panel.

"They have expressed a keen interest to introduce AN LIVING Wealth Access to their existing clients as it is an instrument that enables them to access illiquid wealth stored in their homes to further enhance their financial security whilst living in the comfort of their homes and familiarity of their communities,'' he said.

There are a number of key differences between AN LIVING's scheme and the DBS EIL.

The loan proceeds from DBS EIL are only to be used to top up clients' CPF Retirement Sum which goes towards the CPF Life. In contrast, with AN LIVING's scheme, the loan value can exceed the top up needed to fulfill the CPF Enhanced Retirement Sum. The excess amount is to be advised by FA firms.

DBS EIL charges a fixed interest of 2.88 per cent a year. AN LIVING's scheme is interest-free but charges an upfront fee plus a utilisation fee per annum, among others.