FSC Announces Measures to Improve Reverse Mortgage System
Actuarial Model Redesign to Increase Payouts
Upfront Guarantee Fee Cut from 1.5% to 1.0% of Home Price
Going forward, the average monthly payout from the reverse mortgage (housing pension) will increase by about 40,000 won per subscriber on average. Support will be expanded for vulnerable seniors who own low-priced homes, and the requirement to reside in the mortgaged home will be partially eased. In addition, the upfront guarantee fee, which has been cited as a burden when signing up for a reverse mortgage, will be reduced from 1.5% of the home price to 1.0%.
On February 5, the Financial Services Commission announced a set of measures to improve the reverse mortgage system that include these changes.
Under the new measures, a redesign of the actuarial model will lead to an overall increase in reverse mortgage payouts. For a 72-year-old average subscriber who owns a home with a market value of 400 million won, the monthly payout will increase by 3.13%, from 1,297,000 won to 1,338,000 won. Assuming a remaining life expectancy of 17.4 years, the Financial Services Commission projected that this would result in an additional total payout of about 8.49 million won over the entire subscription period. This measure will apply to new applicants from March 1 onward.
Along with the increase in payouts, preferential schemes for vulnerable seniors will also be expanded. Currently, if at least one spouse receives the basic pension, the couple owns only one home between them, and the home’s market value is less than 250 million won, they can receive a higher pension than the standard type through the “preferential reverse mortgage.” Going forward, if the home’s market value is less than 180 million won, the preferential amount will increase. For example, a 77-year-old subscriber who owns a home worth 130 million won currently receives 93,000 won more per month than under the standard type, but after the improvement, the preferential amount will increase to 124,000 won per month. This measure will apply to new applicants from June 1 onward.
The initial cost burden associated with signing up for a reverse mortgage will also be eased. The upfront guarantee fee for a reverse mortgage will be reduced from 1.5% of the home price to 1.0%, and the period during which the upfront guarantee fee can be refunded will be extended from 3 years to 5 years. However, to prevent a decrease in pension payouts due to the lower upfront guarantee fee, the annual guarantee fee rate will be slightly raised from 0.75% to 0.95% based on the outstanding loan balance.
In addition, the requirement that the borrower must reside in the mortgaged home when signing up for a reverse mortgage will be partially relaxed. A new exception will allow couples who own only one home between them to sign up for a reverse mortgage even if they cannot live in the mortgaged home for unavoidable reasons such as medical treatment, caring for their children, or moving into a senior housing welfare facility.
Furthermore, the system will be improved so that even after a reverse mortgage subscriber dies, an elderly child aged 55 or older can sign up for a reverse mortgage using the same home as collateral without going through a separate debt repayment process. Currently, the child must first fully repay the parents’ reverse mortgage debt in order to enroll.
The Financial Services Commission and the Korea Housing Finance Corporation stated, “These system improvements will further strengthen the incentive to sign up for reverse mortgages,” adding, “We will continue to pursue system enhancements so that reverse mortgages can firmly establish themselves as a key tool for securing retirement income for seniors, and we will also actively explore preferential measures for subscribers in provincial regions going forward.”
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