Modelling the profitability of reverse mortgage loans with life-long annuity payments

Ch. 05020. P. 1–12.

Kuzmina E., Янин А. А.

The article deals with the economic mechanism of reverse
mortgage as a loan product aimed at raising the welfare of senior citizens
who own real estate, for organic farming and soil management. The article
discusses the financial and historical aspects of the implementation of the
reverse mortgage instrument, as well as defines a potential of
implementation of this instrument in Russia. Having identified the
potential, the authors also mentioned the factors that could prevent Russian
banks from adopting this mechanism. The article addresses one specific
factor – absence of adequate instruments to predict and evaluate financial
performance of reverse mortgage instruments. Consequently, the aim of
the current paper is to create a mathematical model of reverse mortgage
loan; specifically, current paper focuses on reverse mortgage loan with lifelong
annuity payments. In order to derive such model, the authors adopted
a perspective, according to which loans are perceived as specific products
present on an open market. As a result, we have obtained a model that
allows lenders to calculate expected gains from reverse mortgage loans
with respect to unknown loan span and varying demand, thus diminishing
the uncertainty about reverse mortgage properties and making this
financial product more attractive and for agricultural planning and
economic, agricultural logistics and transport, et al.

Keywords: mortgage, credit agreement

In book

Ecological and Biological Well-Being of Flora and Fauna (EBWFF-2020)

Vol. 203. , EDP Sciences, 2020.