If the CPF LIFE monthly payouts aren’t enough for you to tide over retirement, then maybe you can benefit from the new DBS Home Equity Loan (EIL) that’ll entitle you to higher monthly retirement payouts for life.
Some people may think that retirement is too far off to plan towards, while others who are nearing retirement age regret not saving enough when they were young to retire comfortably.
Thankfully, the government has given us an emergency exit plan: CPF Lifelong Income For Elderly (LIFE) Scheme, which provides us with monthly retirement payouts based on our paid premiums and accumulated risk-free 6% p.a. interest for as long as we live. However, even with this auto-enrolled retirement scheme (for those born after 1958), you may still think the funds are insufficient for retirement.
If you still need extra funds to supplement the monthly payouts, you’ll be pleased to know that DBS recently launched a new Home Equity Loan (EIL) that entitles you to a higher monthly retirement income for life. Here’s all you need to know:
What is the DBS Home Equity Loan (EIL)?
Not your average home equity loan, the DBS EIL is the very first market-first financing solution, and it is a loan offered to the elderly to unlock the value of their private property (without having to sell the place) and continue living in their homes.
The DBS EIL is meant to supplement those who are benefitting from the monthly retirement sums from CPF LIFE by increasing the guaranteed payout, allowing the seniors to live more comfortably without having to worry about their finances.
The great part about the product is that there is a fixed rate of 2.88% p.a. throughout the loan period of 30 years, giving you peace of mind knowing that the interest rate will not fluctuate or increase.
Who is eligible for it?
Any Singaporean or Permanent Resident aged 65 to 79 who is living in a fully paid private residential property (with a remaining lease of at least 30 years) and does not own other properties is eligible for this scheme. Though it’s meant for retirees, anyone belonging to the age group will be able to apply, so don’t worry if you’re still holding a part-time job to supplement your monthly retirement sum.
Unfortunately, HDB-dwellers will not be able to benefit from this. However, there are other schemes that can help you, such as the HDB Lease Buyback Scheme, which allows you to sell part of your flat’s lease to HDB. The proceeds are then used to top up your CPF Retirement Account (RA), enabling you to receive a higher stream of income in your retirement years as part of CPF LIFE.
Aside from the requirements above, you also need to set up a Lasting Power of Attorney (LPA) on the Ministry of Social and Family Development (MSF) website to be eligible for the loan if you do not have one. This is so that the appointed LPA will be able to make decisions on your behalf in the event you lose the mental capacity to do so.
So how does DBS EIL work?
Think of the EIL as a payment in advance for your house. Basically, they are loaning you a sum of money and unlocking the value of your house so that you’ll get a higher monthly retirement payout on top of CPF LIFE, and when the loan matures or when you decide to sell your house, you’ll pay them the loan amount with the accrued interest.
Though the maximum loan by an individual is the amount required to top up to the current CPF Enhanced Retirement Sum (S$279,000 in 2021), the loan cap for each person also varies based on the value of your house, to ensure that you do not borrow beyond your means.
The loan period is fixed at 30 years till the borrower (or the youngest borrower if it is a joint loan) reaches the age of 95. DBS is also committed to lock the interest rate of 2.88% p.a. throughout the entire loan period. Though it may seem a little on the steep side, it is comparable to that of an HDB loan where the interest rate is at 2.6% p.a., so it is generally a reasonable rate.
DBS EIL does not require monthly repayments, so you’ll just have to repay a lump sum of the loan amount plus the accrued interest once the loan reaches the maturity date. If you want to sell your house before the maturity date and make repayments earlier, the good news is that the scheme is flexible so you can absolutely do so without having to pay any penalty fee.
How does DBS EIL safeguard the borrowers’ interests?
Whenever we sign up for a loan, we’re always worried about the clauses that might do us dirty if we don’t read them properly. However, you won’t have to worry about DBS EIL as they take care of their customers’ needs.
Property prices are always fluctuating according to the market, and if they do fall during the loan period, you can rest assured that there won’t be any additional charges or any extra payments to be made to reduce the outstanding loan.
On top of that, in the event of early termination of the loan (for example, if the borrower passes on during the loan period or if the borrower outlives the loan), your property won’t be sold straightaway. DBS will not repossess the property until they have exhausted all other options with the borrower or estate. This would mean that they would have the estate pay back the loan or get your next-of-kin to do so before they consider selling your property.
Case study: Mr and Mrs Tan
To make everything clearer, here’s a case study of a retired couple, Mr Tan (70 years old) and Mrs Tan (65 years old) who are living in a fully paid condominium.
|Mr Tan||Mrs Tan|
|Desired monthly retirement income||S$1,300||S$1,300|
|Current monthly CPF LIFE payout||S$650||S$450|
|Increase in payout required (DBS EIL)||S$650||S$850|
Step 1: Assess the equity value of their home
Their private property has to be properly assessed for its value before they can approve the loan amount, and the latter is based on the latest valuation of their condominium.
Step 2: Determine the loan amount needed
Upon calculation of their monthly expenses, they’ve decided that a monthly payout of S$1,300 will be sufficient. Based on their existing CPF balances, Mr Tan has to loan an amount of S$115,000 while Mrs Tan has to loan an amount of S$175,000 as a top-up so that they are able to meet their desired monthly payouts. They will both borrow a total of S$290,000 under DBS EIL.
Step 3: Increase CPF LIFE payout
Upon approval, S$115,000 and S$175,000 will be topped up to their respective CPF RA. Since they are both born before 1958, they are not automatically enrolled into CPF LIFE. As such, they will have to apply with the CPF Board for CPF LIFE to enjoy the increased CPF LIFE payouts.
So, should I apply for the DBS EIL?
While this seems like a great solution, it’s all about calculating your expenses and deciding whether the benefits of the additional funds outweigh the accrued interest rate that you’ll have to pay later on.
If the CPF LIFE payouts are incredibly lacking and you can foresee difficulties getting by each day, then the DBS EIL will be a great way to supplement the funds and provide you with a tidy sum to live and retire comfortably. With this scheme, you can delay selling off your private property full of sentimental value and still benefit from the property in the form of monthly payouts.
Alternatively, you can take up a less demanding side hustle – like selling your bakes or handwoven items if you have a hobby you can monetise – to supplement the monthly CPF LIFE payouts and avoid the interest rates that you’ll have to pay off altogether. You can also purchase an annuity plan that can provide you with additional retirement income, or tap on the Supplementary Retirement Scheme (SRS) to start investing for your retirement while enjoying tax savings.
With this new loan type that has just entered the market, it looks like there could be more providers who will be following suit and jumping on the bandwagon in time to come. So if you’ve still got a couple of years before full-fledged retirement, there may be new schemes like these coming your way.
Read these next:
CPF Retirement Sums – A Complete Beginner’s Guide (2021)
How Much Do You Really Need For Dream Retirement?
Guide To Supplementary Retirement Scheme (SRS)
Best Annuity Plan For Retirement In Singapore
What is the “Correct” Age to Retire in Singapore?
By Deborah Gan
A mahjong addict with an undying love for dogs, Deborah is always on the hunt for cheap deals because she is always broke. That is why she is attempting to be more financially savvy to be.. less broke.