5 Things To Know About DBS Home Equity Income Loan (DBS EIL)

For most Singaporeans, a large proportion of our assets is taken up by property (almost 60% of net wealth). In most cases, it is also our primary residence. If you have ever heard stories of elderly persons who still have to scrape together a living despite having a full paid-up home, you know that asset rich and cash poor can be a real concern for some seniors.

Yet, most seniors would prefer to stay in their current home instead of selling and funding their retirement with the proceeds. As the recent relocation of SERS residents of Dakota Crescent and Tanglin Halt have shown, moving in your old age can have some intangible costs for some.

While HDB homeowners have the option of HDB Lease Buyback Scheme to monetise their property for retirement, private property owners didn’t really have a similar scheme in place until now. As of 16 August 2021, DBS is launching a new financing solution for seniors: the DBS Home Equity Income Loan (DBS EIL).

The DBS Home Equity Income Loan (DBS EIL) is a pilot scheme that complements the national CPF LIFE Scheme, allowing eligible seniors to borrow against their residential property to top up their CPF Retirement Sums and enable them to receive greater CPF LIFE monthly payouts to fund their retirement.

Here’s what you know to know about the DBS Home Equity Income Loan (DBS EIL).

Read Also: HDB Lease Buyback Scheme Now Open To All Flats: Here’s How It Works

#1 DBS Home Equity Income Loan (DBS EIL) Only Available To Eligible Seniors With A Single Property

To apply for the DBS EIL, you will need to be a Singapore Citizen or Permanent Resident (PR) and be aged between 65 and 79 years old.

You also need to own and stay in a private residential property that is fully paid up and you must not own any other property in and/or outside of Singapore. The property should also have at least a remaining lease of 30 years.

Additionally, you will have to set up a Lasting Power of Attorney (LPA) as one of the conditions to take the loan.

#2 The Maximum Loan Amount Is Determined By CPF Retirement Sums

As the DBS EIL is designed to complement and work in conjunction with the CPF LIFE scheme to allow seniors to monetise their property for a stream of income in retirement, the maximum amount you can borrow is capped. The loan amount, subject to credit assessment, is at least the amount needed to top up your CPF funds to Full Retirement Sum (FRS) and up to the prevailing ERS.

For those who turn 65 years old in 2021, their CPF Retirement Sums would have been set when they turn 55 years old in 2011. This would be $131,000 for FRS for the cohort who turns 65 years old in 2021.

For the prevailing ERS, in general, the ERS is 1.5 times of the FRS. For 2021, the ERS is set at $279,000.

This means that for a 65-year-old who does not have a single cent in their CPF accounts, he can borrow between $131,000 to $279,000 through the DBS EIL.

Read Also: Here’s What Your CPF Full Retirement Sum Might Look Like When You’re 55

#3 You Will Not Receive A Lump Sum Payment But Will Receive A Monthly Income Through CPF LIFE

Unlike existing mortgage equity withdrawal loans or more commonly known as home equity loans, the DBS EIL doesn’t not pay out a lump sum payment for the loan. Instead, the loan amount is directly put into your CPF account to fund your CPF LIFE monthly payouts.

If there are any outstanding CPF charges on the property, they will be discharged during the loan application process to ensure that you obtain the loan amount needed to increase your CPF LIFE payouts.

Assuming that you are a 65-year-old who borrows up to the ERS, your estimated CPF LIFE monthly payouts will be $1,498 to $1,585 and this payout will continue for the rest of your life, even if you outlive the loan tenure.

Read Also: How Much You Need In Your CPF Retirement Account (RA) At 65 To Afford The Average Retiree’s Expenses With CPF LIFE Payouts?

#4 The Loan Tenure And Interest Rate For The DBS EIL Pilot Is Fixed

Under the current pilot, the loan tenure and interest rate for the DBS Home Equity Income Loan is a maximum of 30 years at 2.88% p.a. The current CPF LIFE premiums are earning an interest rate of 4% p.a. This means that borrowers will automatically be earning the difference of 1.12% p.a..

If the loan amount is $279,000, this interest difference will work out to be $3,124.80 per year or $93,744 over 30 years. However, as the payout is made in the form of monthly CPF LIFE payouts, this increase will be diluted and may be unfelt.

Instead, what the loan does to unlock the value of home equity and allow seniors who would be receiving little to no CPF LIFE payout, to receive a modest income that can be sufficient for their retirement needs.

Read Also: Here’s How CPF Accrued Interest On Your Home Affects Your Retirement Planning

#5 You Do Not Need To Make Monthly Repayments

A departure from home equity loans, the DBS Home Equity Income Loan (EIL) doesn’t require monthly loan repayments. Instead, you only have to repay the loan and the interest accrued at the loan maturity or when you sell your property. Additionally, you have the flexibility of selling anytime and there are no penalty fees imposed by the bank for selling within the loan period.

The DBS EIL also doesn’t require you to make payments to reduce the outstanding loan amount if your property value declines during the loan period.

As the loan is designed to enable ageing in place, DBS also promises to not take immediate action (foreclosures) against your property and to work together with you (or your estate) to find mutually acceptable options in the event of:

• The borrower outliving the loan maturity
• The death of the borrower during the loan period
• The bankruptcy of the borrower during the loan period.

DBS Home Equity Income Loan (EIL) Is Not A Traditional Home Equity Loan

Based on the details released on the DBS Home Equity Income Loan (EIL), the loan is significantly different from the existing home equity loan solutions available on the market today. Instead, it is designed as a private-public partnership solution, complementing CPF,  to tackle the difficulties of ageing-in-place that many seniors face today.

The DBS EIL acts as an option for private property owners as what the HDB Lease Buyback Scheme acts for HDB homeowners: a viable financial solution to age and stay in our own homes while still using the home equity we accumulated over the years to secure a stream of retirement income.

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