Year Published
2006
Abstract
We analyze the insurance premium structure of reverse mortgage loans in Korea. Our analyses
provide a comparison between the reverse mortgage loans structured with constant monthly
payments to those structured with graduated monthly payments which are indexed to the growth
rate of consumer prices. Using the total annual loan cost measure, we find that, to the relatively
younger borrowers, the graduated monthly payments approach is more efficient; while the
constant monthly payments approach is more efficient to the older borrowers. Our sensitivity
analyses confirm that the younger borrowers are more sensitive to the change of loan terms.
Therefore, we propose that insurance premium structure should be more conservative to the
relatively younger borrowers group. The results of this study can provide useful guideline to the
operation of reverse mortgage system in Korea as well as in other countries.
provide a comparison between the reverse mortgage loans structured with constant monthly
payments to those structured with graduated monthly payments which are indexed to the growth
rate of consumer prices. Using the total annual loan cost measure, we find that, to the relatively
younger borrowers, the graduated monthly payments approach is more efficient; while the
constant monthly payments approach is more efficient to the older borrowers. Our sensitivity
analyses confirm that the younger borrowers are more sensitive to the change of loan terms.
Therefore, we propose that insurance premium structure should be more conservative to the
relatively younger borrowers group. The results of this study can provide useful guideline to the
operation of reverse mortgage system in Korea as well as in other countries.
Research Category
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