Reverse Mortgage Loan to Hedge Longevity Risk-Comparison with Immediate Life Annuities- (주택연금이 장수리스크 감소에 미치는 효과에 관한 분석 -종신형 즉시연금과의 비교를 중심으로-)

Yang Jaehwan (양재환); Yoonkyung Yuh (여윤경); 김혜경

Reverse Mortgage Loan to Hedge Longevity Risk-Comparison with Immediate Life Annuities-

Journal of Insurance and Finance
2014, 25(1), pp.29-73
Publisher : Korea Insurance Research Institute
Research Area : Social Science > Business Management

Yang Jaehwan ¹, Yoonkyung Yuh ², 김혜경 ³

¹서울시립대학교
²이화여자대학교
³이화여자대학교 경영학과

Accredited

ABSTRACT

This paper analyzed the financial and the utility values of the reverse mortgage loan by comparing them with those of the immediate life annuities. The financial value was measured by MW ratio, and the utility value was estimated by RMEA, which is similar to the widely used AEW. First, the results from the financial analysis indicate that, if the value of the reverse mortgage loan consists of the residential value and the annuity value, then the residential value is considerably high in the reverse mortgage loan. The MW ratio varies among the house ownership types, but the MW ratio of the monthly rent type is over 1, and MW ratio of the residential value is higher than MW ratio of the annuity value in the monthly rent type. Regarding utility-based analysis, if the residential cost is ignored, then the immediate life annuity is favorable compared to the reverse mortgage loan. However, if the housing cost is assumed to be 30% of the current value of the house, then the reverse mortgage loan starts becoming a better choice than the immediate life annuity depending on the house value, financial asset, and payout types. Moreover, if the housing cost is assumed to be 50% of the current value of the house, then the reverse mortgage loan becomes a better option than the immediate life annuity for all considered cases. These findings imply that the residential value of the reverse mortgage loan has considerable benefits in lowering the longevity risk, especially for groups who expect certain housing costs.

KEYWORDS

Reverse Mortgage Loan, Immediate Life Annuity, Expected Utility Function, Money’s Worth Ratio

Citation status

* References for papers published after 2023 are currently being built.

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