State-owned Government Savings Bank, the country's first provider of reverse mortgages, is allocating 10 billion baht for the loan scheme.
The bank is capping maximum credit for the mortgage at 10 million baht per loan, said chief executive and president Chatchai Payuhanaveechai. That amount includes principal, interest and fees such as mortgage fee and fire insurance.
Reverse mortgages convert home equity into cash for seniors. Those age 60 to 80 who have a debt-free home are eligible to seek a reverse mortgage starting Wednesday.
The loan has a maximum term of 25 years, but the borrower's age must not exceed 85 when the loan term ends.
Potential borrowers can ask for a loan of up to 70% of the appraisal price for low-rise homes and 60% for condos. The house must have been built by a property developer.
Initially, the lending service is limited to owners of homes located in districts of Bangkok and the vicinity: Nonthaburi, Pathum Thani, Samut Prakan, Samut Sakhon and Nakhon Pathom.
For other provinces, homes must be located in Muang district. The bank will extend the service area nationwide later, Mr Chatchai said.
Reverse mortgages let elderly homeowners convert their home equity into cash, with no loan repayments until the borrower dies, helping to cover monthly living expenses and healthcare costs while the owner still lives in the house.
Borrowers are allowed to draw down the loan every month until they die or the 25-year loan term ends, whichever comes first.
If the borrower lives longer than 85, he or she can ask the bank to review the home's collateral value with the aim of receiving additional loans, as collateral value normally increases with time.
In the event that the borrower passes away, heirs can choose to buy back the home. Otherwise, the bank will put it up for sale. If the home is sold for more than the value of the loan, the bank will return the difference.
Reverse mortgages are part of the government's plan to strengthen the retirement safety net as Thailand becomes an ageing society.
The government expects the number of people aged 60 and over to represent 16.8% of the population in 2020, rising to 20% in 2025 -- up from 13.8% in 2015.
Mr Chatchai said interest will be waived for the first year and the bank will charge the minimum retail rate (MRR) minus 1 percentage point for the remaining period. But for loans approved until next March 31, the interest-free period will be extended to two years, he said.