Evaluation of Reverse Mortgage Programs in Korea

NUS Institute of Real Estate Studies Working Papers IRES2011-027

19 Pages Posted: 18 Oct 2006 Last revised: 13 Nov 2011

See all articles by Seungryul Ma

Seungryul Ma

Daegu University

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Date Written: September 1, 2006

Abstract

We analyze an actuarial model of reverse mortgage programs in Korea. Our analyses provide a comparison between the reverse mortgage loans structured with constant monthly payments to those with graduate monthly payments which are indexed to the growth rate of consumer prices. Using the total annual loan cost measure, we find that the graduate monthly payments approach is more efficient than the constant monthly payments approach. Our analyses confirm that younger age cohorts are more sensitive to the change of loan terms. We propose that the terms of the reverse mortgage programs should be structured more conservatively to the relatively younger borrower groups. The results of this study provide useful information to the reverse mortgage borrowers for their selection of payment options. The findings can also provide useful guideline to the future operation of reverse mortgage system in Korea and other countries.

Keywords: Insurance premium structure, Reverse mortgage, Constant monthly payments, Graduate monthly payments, Total annual loan costs rates

JEL Classification: G21, G22, G28

Suggested Citation

Ma, Seungryul and Deng, Yongheng, Evaluation of Reverse Mortgage Programs in Korea (September 1, 2006). NUS Institute of Real Estate Studies Working Papers IRES2011-027 . Available at SSRN: https://ssrn.com/abstract=938213 or http://dx.doi.org/10.2139/ssrn.938213

Seungryul Ma

Daegu University ( email )

Department of Insurance and Finance
Jinrang, Gyeongsan, Gyeongbuk
Korea, Republic of (South Korea)

Yongheng Deng (Contact Author)

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

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