Reverse mortgage - chance or risk
Author: Dr Joanna Cichorska (Department (Faculty) of Banking and Financial Markets Uniwersytet Ekonomiczny in Katowice)
Keywords: Reverse mortgage, property value, pension, ownership, average life
Ageing Europeaean societies are standing before a dilema of having to provide old age pensions to ever increasing group of people. The currently functioning system of pensions basing on a state fund, does not seem to be doing the job and today's pensioners are not members of pension funds investing on the capital market which were established in the 90s. Reverse mortgage is a payment under which the role of a lender and borrower have been reversed. Property owner shall relinquish the right to the property on his death. In the case of a downpayment, its level does not exceed 50% of the value of the property. In return he will receive a monthly payments or a total downpayment. The amount of the payment depends on how long it will be taken and on the value of property transferred to the benefactor. As a result, the value of payments will depend on the beneficiary's age. Increasing life expectancy acts against the interest of the payer who will be obliged to pay longer. That is why an older person will receive a higher amount of payment Differences in life expectancy between men and women also make a difference in the amounts paid. Adverse conditions of reverse mortgage and lack of legal regulations cause a situation in which banks are not willing to undertake such tasks. Thus, reverse mortgage has only marginal importance for banks.
