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People's Daily Online>>China Business

Bank to see you through the twilight years

By ChenXin, He Dan and Zheng Jinran  (China Daily)

09:20, January 04, 2012

BEIJING - Reverse mortgage might be a smart choice for the Chinese to ensure greater financial security in their old age, but would have to be carried out widely to achieve a desirable effect.

Old people can get funds by renting or selling houses they do not use, or mortgaging their property to financial institutions to receive monthly payments over a specified term or until they are alive. The bank to which the property is mortgaged continues to pay the loan until the house has been fully paid for or the owner dies. And then the house could be put on sale.

As the first generation of parents affected by the family planning policy (introduced in 1970s) gets older, a young couple has to support two sets of elderly parents, and sometimes grandparents as well. Previously, the responsibility would be shared between siblings.

Reverse mortgage, which might help take the load of the backs of adults with elderly parents, is still to catch on in China.

At the end of 2010, China registered a population of 178 million people who were 60 or older. The Ministry of Civil Affairs forecasts that in 2020 the number would be 243 million, accounting for 18 percent of the population.

Cheng Haoye, a market researcher at Beijing-based 5i5j Real Estate Service Company, said while it's common for senior homeowners to lease their extra houses or rooms to tenants to collect money to supplement social security or pension, only a few of them were interested in reverse mortgage services.

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Canada at 2012-01-0470.36.49.*
Further to my previous submission. My example needs correction. The homeowner is entitled to a line of credit of $60,000.00. But they only pay interest monthly [prime plus 2%]on the amount that has been withdrawn from the $60,000.00. So if the first month they withdraw $100.00, they pay interest on $100.00. If the next month they have withdrawn $200.00, they pay interest on $200.00 ...and so on. They could also pay some back. Each month they pay interest on the total amount that has been withdrawn.
Canada at 2012-01-0470.36.49.*
Reverse mortgages here are only offered by the private sector and I don"t think they are very popular as they are subject to fraud and abuse. Perhaps if the reverse mortgage is done by the government where it can be well regulated. Another way here that only applies if the person owns the home and no money is owed on it. They can get a line of credit from a bank for no more than 60% of the appraised value of the home [the financial institute chooses the appraiser, the homeowner pays the cost] , and the homeowner pays interest monthly on that money. The interest rate is lower than the mortgage rate as it is backed by the home, also the homeowner is not paying interest on the full value of the home, just on the 60% that has been borrowed. Then they can withdraw as much money as they need each month. Example: The home is appraised at $100,000.00. The homeowner can get a line of credit for $60,000.00. The homeowner pays the interest on that $60,000.00 each month....usually prime plus 2%. They can choose how much money they want to withdraw and use each month, but they can"t withdraw more than $60,000.00. Once they have withdrawn $60,000.00 they still have to pay the monthly interest until the home is sold. [Or they can stay in the home as long as they continue to pay the monthly interest]. If the house is sold, the bank gets paid the $60,000.00 - the homeowner gets the balance after cost of selling it is deducted. This is likely the more popular option here. There is an inheritance tax here on the value of the estate above a base level set by government.

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