Equity Release Contracts with Varying Payments

Agnieszka Marciniuk

Prague Economic Papers, 2021, vol. 2021, issue 5, 552-574

Abstract: Equity release contracts allow property owners to receive a financial benefit in exchange for surrendering their real estate to a company. The benefits depend on the life expectancy of owners, the real value of properties, and the rate of interest. These parameters are not the same throughout the years. The aim of the paper is to analyse varying payments of equity release contracts which have already been offered to customers for several years in Poland. A recalculation procedure year by year is proposed applying the actuarial and financial methods. This paper estimates the potential advantages of reverse annuity and reverse mortgage contracts in a changing economic environment. The calculations were made based on actual Polish market data, including the Svensson model of spot interest rate. It is shown that there is considerable scope for increasing retirement income; however, the exact amounts may be unknown. The advantages for customers resulting from changes in parameters and valorization are shown, as well as the risk associated with equity release.

Keywords: Equity release contracts; reverse annuity contract; reverse mortgage; valori-zation rate; spot interest rate; Svensson model (search for similar items in EconPapers)
JEL-codes: C50 C60 G17 G22 I13 J10 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.18267/j.pep.784

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