Enhancing sell-type home reversion products for retirement financing

• Main Authors: KWONG, Koon Shing, GOH, Jing Rong, CHUA, Ting Lin Collin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Equity release products; Equivalence principle; Lease Buyback Scheme; Reverse mortgage; Asian Studies; Finance; Gerontology; Real Estate
• Online Access: https://ink.library.smu.edu.sg/soe_research/2783; https://ink.library.smu.edu.sg/context/soe_research/article/3782/viewcontent/risks_12_00022_pvoa_cc_by.pdf
• Institution: Singapore Management University

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.