Cross-Sectional Evidence on Reverse Mortgage Choices in Korea: Are Housing Pensions Attractive to House-rich and Cash-poor Households?

Using reverse mortgages, elderly homeowners can convert their housing equity to disposable cash to cover living expenses in retirement. Little evidence has been reported, however, indicating whether or not reverse mortgage are attractive to “house-rich and cash-poor” elderly citizens; with aggregate data, recent empirical studies take no account of some household characteristics that are relevant to reverse mortgage choices. With a household-level dataset, we investigate empirical evidence for reverse mortgage choices in Korea. Unlike most previous studies that focus on US reverse mortgage markets, we study a non-US reverse mortgage market; modeled after the US Housing and Urban Development’s Home Equity Conversion Mortgage (HECM), the Korea Housing Finance Corporation (KHFC) developed a program of tenure reverse mortgages, so-called housing pensions, in 2007. The dataset collected by the KHFC includes both 600 reverse mortgage borrowers and 2,000 non-borrowers. Our analysis shows that house-rich and income-poor elderly homeowners find housing pensions attractive. Moreover, we provide empirical evidence that bequest-related motives and health conditions are critical factors in housing pension choices. As an alternative to anecdotal evidence from countries facing aging populations, the empirical evidence from Korea is expected to provide the basis for a rationale for policymakers in aging societies that are seeking to develop new reverse mortgage products for senior citizens.​