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Enhancing Sell-Type Home Reversion Products for Retirement Financing

Author

Listed:
  • Koon Shing Kwong

    (School of Economics, Singapore Management University, Singapore 178903, Singapore)

  • Jing Rong Goh

    (School of Economics, Singapore Management University, Singapore 178903, Singapore)

  • Ting Lin Collin Chua

    (School of Economics, Singapore Management University, Singapore 178903, Singapore)

Abstract

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.

Suggested Citation

  • Koon Shing Kwong & Jing Rong Goh & Ting Lin Collin Chua, 2024. "Enhancing Sell-Type Home Reversion Products for Retirement Financing," Risks, MDPI, vol. 12(2), pages 1-13, January.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:2:p:22-:d:1328841
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    References listed on IDEAS

    as
    1. Carole Bonnet & Sandrine Juin & Anne Laferrère, 2019. "Private Financing of Long‑Term Care: Income, Savings and Reverse Mortgages," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 507-508, pages 5-24.
    2. Johnny Siu‐Hang Li & Mary R. Hardy & Ken Seng Tan, 2010. "On Pricing and Hedging the No‐Negative‐Equity Guarantee in Equity Release Mechanisms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 499-522, June.
    3. Chen, Hua & Cox, Samuel H. & Wang, Shaun S., 2010. "Is the Home Equity Conversion Mortgage in the United States sustainable? Evidence from pricing mortgage insurance premiums and non-recourse provisions using the conditional Esscher transform," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 371-384, April.
    4. Katja Hanewald & Thomas Post & Michael Sherris, 2016. "Portfolio Choice in Retirement—What is The Optimal Home Equity Release Product?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 421-446, June.
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