Insurance Premium Structure of Reverse Mortgage Loans in Korea

Seungryul Ma and Yongheng Deng

No 8568, Working Paper from USC Lusk Center for Real Estate

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.

Keywords: Insurance premium structure; Reverse mortgage system; Graduated monthly payments; Mortgage insurance premium; Total annual loan costs rates (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:luk:wpaper:8568

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