The Financial Values of Korean Reverse Mortgages

Ahn, Seryoong

doi:2018.47.5.823

Korean J Financ Stud > Volume 47(5); 2018 > Article

Korean Journal of Financial Studies 2018;47(5):823-847.
DOI: https://doi.org/10.26845/KJFS.2018.10.47.5.823 Published online October 31, 2018.

The Financial Values of Korean Reverse Mortgages

Seryoong Ahn

주택연금 제도의 재무적 가치

안세륭

한국주택금융공사

Abstract

A reverse mortgage is a financial product with a strong social welfare characteristic that enables elderly people who own a house but insufficient cash flows to liquidate their housing assets. Since the potential borrowers have the option to sign up for a reverse mortgage at any time before death, this study analyzes the financial value of the option to the potential borrowers applying American option valuation method with a stochastic interest rate and a stochastic house price model.
As a result, the financial value of the 60-year-old household was found to be approximately 3.6% of the house price, 70-year-old, 2.4%, 80-year-old, 1.3%, confirming that the financial value of the reverse mortgage is considerable. This level of value was mostly not the benefit of non-recourse property of the reverse mortgage, but of the reduced cost of securitization. It was also found that the financial value of the reverse mortgage increases as the long-term average interest rate decreases and/or the growth rate of house price increases, but the volatility of the interest rate and the house price do not have any significant effect. The results of this study will provide in-depth understanding of the significance and useful insights into the operation of the reverse mortgage to the related agencies.

Key Words: 주택연금,비소구 대출,유동화비용,재무적 가치,크로스오버 리스크,Reverse Mortgage,Non-Recourse Loan,Securitization Cost,Financial Value,Crossover Risk