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Elderly to get chance to turn table on debt
The Asahi Shimbun, January 17, 2002
Elderly homeowners with financial difficulties may have a lot less to worry about this year when the government introduces so-called reverse mortgages.
The system will allow low-income seniors to take out loans using their real estate property as collateral, which will eventually cover the loan after they die. That is the reverse of a regular mortgage, in which people pay back loans to eventually own their homes.
Though few older people are comfortable with the idea of selling their homes, they are more open to the idea of clearing debts with their assets after they die. The plan was created with this in mind.
Reverse mortgages are expected to grab the attention of many seniors, especially following the recent hike in medical care expenses and the introduction of the national nursing care system.
The Ministry of Health, Labor and Welfare is intending the new system for elderly homeowners with limited income.
The maximum size of each reverse mortgage will be determined based on about 50 percent of the appraised value of the recipient's real estate property, plus an amount guaranteed by a joint surety.
The recipient will then decide on the size of the monthly payments, up to that limit.
According to ministry projections, each recipient's monthly payment from the plan, together with the person's existing income, should amount to about 1 times the amount guaranteed by the social welfare program.
Social welfare standards vary, depending on the size and location of the household. Elderly couples living in an urban area are usually eligible for about 150,000 yen a month in welfare. In that case, the couple could take out a reverse mortgage that would pay them about 230,000 yen a month.
Loan contracts will be good for three years, at an interest rate of up to 3 percent. The contract can be renewed as long as it does not exceed the maximum amount.
The contract is terminated when the recipient wants to end the term, when the
accumulated payments have reached their limit or when the recipient dies.
The loan is then repaid through the sale of the collateral or by the joint surety.
Recipients will not be evicted from the properties, however, even if they have reached the limit of their reverse mortgage. In such cases, the recipient will be transferred to a welfare program, and the loan repaid posthumously.
Although the ministry will implement the plan nationwide, individual prefectures will be responsible for its day-to-day operation. Municipal branch offices of prefectural social welfare committees will serve as the point of contact with the public.
The central and prefectural governments will earmark a total of about 370 million yen in subsidies for fiscal 2002, including 250 million yen from the national budget, for the program. An additional 10 billion yen held in prefectural social welfare funds can also be used.
Although municipal governments and financial institutions have offered similar reverse mortgages before, they have not been popular, due to difficulties in finding joint sureties or fears of falling land prices.
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