Publication Type

Journal Article

Version

publishedVersion

Publication Date

4-2021

Abstract

There are two main equity release plans for retirement financing: reverse mortgage plan and home reversion plan. Both plans entitle the homeowners not only to release cash from their properties but also to allow them living there for life. In the lease buyback scheme (LBS) recently introduced in Singapore, the home owner sells the tail-end of the property lease to the government in exchange for a cash payment upfront. Unlike the two main equity release plans, the LBS only allows the owner to stay in the property for the front part of the lease but not for life.

In this paper, we propose a hybrid home equity release plan that incorporates features of the home reversion plan and the LBS. We provide an actuarial framework to analyze the pricing of the hybrid plan, as well as the LBS and home reversion plan. Some numerical illustrations are presented to show the actuarial values of the plan under different choices of plan parameters, such as the lease period and the portion of property value sold. The hybrid plan provides enhanced flexibility to plan takers to meet their retirement needs.

Keywords

reverse mortgage, Lease Buyback Scheme, equivalence principle, mortality risk

Discipline

Econometrics | Finance

Research Areas

Econometrics

Publication

Asia-Pacific Journal of Risk and Insurance

Volume

15

Issue

1

First Page

1

Last Page

24

ISSN

1793-2157

Identifier

10.1515/apjri-2019-0028

Publisher

De Gruyter

Embargo Period

5-26-2021

Copyright Owner and License

Publisher

Additional URL

https://doi.org/10.1515/apjri-2019-0028

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