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KMID : 1124020170330020077
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Korean Social Security Studies
2017 Volume.33 No. 2 p.77 ~ p.102
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A Comparative Study on Sustainability of the Reverse Mortgage Loan
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Shin Kee-Chul
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Abstract
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The reverse mortgage loan guarantee in Korea is introduced to protect delinquencies incurred by financial institutions which grant a reverse mortgage loan on house to aged persons. It`s guarantee terms are vulnerable in the aspect of financial sustainability and social equity compared to the USA and the UK. Especially the preferential reverse mortgage loan introduced in 2016, which grant favorable monthly payments to the owner of houses valued under 150 million won, can be misused and the financial burden will be passed to next generation. Key variables to sustainability of the reverse mortgage loan guarantee system are death ratio and house appreciation rate. In order to calculate monthly payments, the HECM in the USA assumes very conservative variables based on its past experiences. However in Korea the government assumes average death ratio of general citizen and the national house price appreciation rate. Thus monthly payments are too generous to sustain. Furthermore in the USA federal reverse mortgage loan guarantor examines the conditions of houses and credibility of borrower to protect delinquencies. Public pension entitlement and poverty ratios of the aged in Korea are lowest among OECD countries and the baby boomers are retiring gradually. Thus the reverse mortgage loan guarantee system should be improved to encourage reverse mortgage loan in the long run.
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KEYWORD
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intergenerational transfer, reverse mortgage loan, reverse mortgage loan guarantee, sustainability
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