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The Korea Times Mon, September 9, 2024 | 10:23 Reverse Mortgages Gaining Popularity Posted : 2007-08-14 18:07 Updated : 2007-08-14 18:07By Lee Hyo-sik
Staff Reporter
Housing-based pension plans, or reverse mortgages, are gaining popularity among senior citizens who own houses but need cash to finance their livelihood after retirement.
The Korea Housing Finance Corp. (KHFC) said Tuesday that 181 senior citizens nationwide had last month applied for its reverse mortgage plans aimed at helping senior citizens lead stable lives after retirement.
KHFC launched the new financial product on July 12 after a year's preparation and 55 applicants have already begun receiving pensions.
People aged 65 or older owning one home worth 600 million won or less can get a monthly payment for the rest of their lives after providing their homes as collateral to KHFC and other financial institutions.
Both the senior citizen and their spouse should be 65 years or older. They can continue to live in the house and when the subscriber dies, the spouse will continue to get the payment until his or her death.
The monthly payment differs depending on the value of the house and the age of the subscriber.
KHFC estimates the average monthly payout to the 181 reverse mortgage applicants whose age is on average 74 will reach 1.04 million won. Sixty-five applicants are expected to get between 500,000 won and 1 million won, while 41 will add extra money ranging from 1 million won to 1.5 million won to their monthly income.
The average value of houses that applicants provided as collateral stood at 254 million won. Forty-eight houses were valued at between 100 million won and 200 million won, while those priced at over 500 million won were 17.
By type of housing provided as collateral, 155 senior citizens offered apartments as security, accounting for 85.6 percent of the total. About 74 percent of houses put up as collateral are located in and around Seoul.
``Our reverse mortgages are more popular than we initially thought among senior citizens who own houses but lack cash. About 5,000 elderly homeowners have consulted with us about the mortgages over the past month,'' a KHFC official said.
He also said no homeowner in affluent southern Seoul has applied for the housing-based pension plans as those owing houses valued at over 600 million won are not eligible for the plan.
The monthly payment is calculated by considering the life expectancy of the subscriber and the trend of housing prices and interest rates. It is equivalent to around 6.1 percent interest for loans.
Among 181 reverse mortgage applicants, the oldest beneficiary is a 92-year old man in Gwangju who will receive a monthly average of 630,000 won for putting up his 65-million won detached house as collateral.
Also, a 91-year old female who owns an apartment valued at 380 million won will receive the largest pension of 3.27 million won for the rest of her life.
Reverse mortgages have been introduced a number of times in the past, but they soon disappeared from the market as they had a short maturity. Senior citizens feared that they might be evicted from their houses if they lived longer than the maturity of the loans.
