A Hybrid Equity Release Plan for Retirement Financing

Kwong Koon-Shing (), Tse Yiu-Kuen () and Chay Junxing ()
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Kwong Koon-Shing: School of Economics, Singapore ManagementUniversity, Singapore
Tse Yiu-Kuen: School of Economics, Singapore ManagementUniversity, Singapore
Chay Junxing: School of Economics, Singapore ManagementUniversity, Singapore

Asia-Pacific Journal of Risk and Insurance, 2021, vol. 15, issue 1, 23-46

Abstract: There are two main equity release plans for retirement financing: reverse mortgage plan and home reversion plan. Both plans entitle the homeowners not only to release cash from their properties but also to allow them living there for life. In the lease buyback scheme (LBS) recently introduced in Singapore, the home owner sells the tail-end of the property lease to the government in exchange for a cash payment upfront. Unlike the two main equity release plans, the LBS only allows the owner to stay in the property for the front part of the lease but not for life. In this paper, we propose a hybrid home equity release plan that incorporates features of the home reversion plan and the LBS. We provide an actuarial framework to analyze the pricing of the hybrid plan, as well as the LBS and home reversion plan. Some numerical illustrations are presented to show the actuarial values of the plan under different choices of plan parameters, such as the lease period and the portion of property value sold. The hybrid plan provides enhanced flexibility to plan takers to meet their retirement needs.

Keywords: reverse mortgage; lease buyback scheme; equivalence principle; mortality risk (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/apjri-2019-0028

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