Pricing reverse mortgages in Spain

Debón, Ana; Montes, Francisco; Sala, Ramon

doi:10.1007/s13385-013-0071-y

Cited by 9 publications

(10 citation statements)

References 50 publications

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“…Regarding mortality tables, other options are possible. For instance, Debón et al (2013) use the Lee-Carter model to construct dynamic tables for Spanish mortality and apply them to a specific type of RM. Considering also that Atance et al (2020) conclude that the best model in terms of prediction ability for each sex and European country is, in general, the Lee-Carter model, we may think that this is a good option.…”

Section: Discussionmentioning

confidence: 99%

Reverse Mortgage and Financial Sustainability

Val

Bielsa

Varea

2022

Technological and Economic Development of Economy

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This paper analyzes the effects that contracting a reverse mortgage has on the finances of families of a country or group whose members who aged 65 or older are the sole owners of the 100% of the property, regardless of the receipt of a retirement pension. For this purpose, an economic-financial model based on the life cycle model is defined, which considers a double source of randomness: mortality and dependence of family members. Long-term effects are measured using probabilistic, temporal and monetary indicators. For each country, the model must be adapted according to the legal framework for retirement and long-term care benefits and for the actuarial mortality and long-term care tables. As an illustration, this model was applied on Spanish families using data from the Spanish Survey of Household Finances 2017. The results obtained indicate that a family in Spain that meets the conditions for contracting a reverse mortgage sees, on average, an increase in its initial income and a decrease in both its probability of having liquidity problems in the future and the value of this lack of liquidity. It is also concluded that family composition influences the magnitude of these positive effects.

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Section: Discussionmentioning

confidence: 99%

Reverse Mortgage and Financial Sustainability

Val

Bielsa

Varea

2022

Technological and Economic Development of Economy

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“…Additionally, the valuation of reverse mortgages also involves a third risk, the mortality/ longevity risk, which assumes that individuals will live longer than expected (Debón et al, 2013). A wide range of mortality models has been employed in the literature to forecast the mortality process, with the Lee and Carter (1992) 2023).…”

Section: Literature Reviewmentioning

confidence: 99%

Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

Atance,

Debón,

De La Fuente

2023

Technological and Economic Development of Economy

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The continuous growth in life expectancy, besides to the difficult economic and financial situation of the public pension system in Spain, makes reverse mortgages an attractive solution for providing additional income to retirees. However, despite being almost 20 years old, the Spanish market remains immature. Consequently, providers face significant risks, due to factors such as interest rates, housing prices, and longevity. Numerous tourists visit Spain, and many retire there, obtaining legal residence. Therefore, lenders could be interested in marketing reverse mortgages to foreign residents. Nevertheless, the longevity risk faced by these lenders may differ depending on the nationality of the borrower, and profits and losses could vary. Consequently, we propose a methodology for comparing the pricing of reverse mortgages in Spain by considering differences in longevity risk. Specifically, we calculate the amount offered by three types of reverse mortgages to customers of different nationalities, genders, and ages with contracts made in Spain. Our conclusions are pertinent to Spanish lenders since the results indicate that, in general, a Spanish lender would assume a slightly larger risk when lending reverse mortgages to borrowers of the selected nationalities, regardless of other considerations, such as legal issues, which are not addressed in this article.

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“…The pricing and hedging of non-recourse loan risk has been extensively studied by Chen et al (2010), Li et al (2010), Lee et al (2012), Kogure et al (2014), Shao et al (2015), and Wang et al (2016), to name a few. Despite most retirees appearing to be unaware of or unfamiliar with RM, this loan type has been developed to become the most popular and widely-available equity release product in many countries, such as the US (Shan 2011), UK (Sharma et al 2022), Australia (Ong 2009), Korea (Kim and Li 2016), Japan (Mitchell and Piggott 2004), Spain (Debon et al 2013), etc. In addition to using RM as a source of financial income, Stucki (2006), Andrews and Oberoi (2015), and Bonnet et al (2019) also explored the opportunities and challenges in linking RM with long-term care (LTC) needs and financing.…”

Section: Introductionmentioning

confidence: 99%

Enhancing Sell-Type Home Reversion Products for Retirement Financing

Kwong,

Goh,

Chua

2024

Risks

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Loan-type reverse mortgage plans and sell-type home reversion plans for retirement financing are two well-known equity release plans that entitle homeowners not only to release cash from their properties but also to allow them to age in place. Recently, a new hybrid equity release plan was proposed to incorporate the home reversion plan’s features with an option of staying in the property for a fixed period without being subject to survival. This additional option provides flexibility to homeowners to better meet their retirement financial and personal needs by reducing the financial uncertainty of home reversion products. In this article, we propose an enhanced home reversion plan with some new features to meet retirees’ other financial needs, such as life annuity incomes and guaranteed return of principal invested. An actuarial framework is provided to analyze the cost components of each benefit offered under the enhanced home reversion product. Numerical illustrations are presented to demonstrate and examine the actuarial values of the benefits and product risks with different parameter configurations under the recent Singapore mortality data set.

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Pricing reverse mortgages in Spain

Cited by 9 publications

References 50 publications

Reverse Mortgage and Financial Sustainability

Reverse Mortgage and Financial Sustainability

Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

Enhancing Sell-Type Home Reversion Products for Retirement Financing

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