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
Date Written: September 1, 2006
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: Suggested Citation