The actuarial valuation of reverse mortgages in ChinaAuthor(s): Zhu Yanxia, Gong Li
Owing to high housing self-ownership rate in China, it is a realistic option for the government to implement the housing reverse mortgage to relieve the fiscal pressure and supplement the drop or insufficiency of social security income. But it is also difficult to evaluate reverse mortgage for its payments depend on the housing value at maturity. After describing the stochastic processes of interest rate and the growth rate of housing value, the paper builds the actuarial pricing models of reverse mortgages to evaluate the annuity payments of reverse mortgages. The result reflects that the payments can effectively supplement the social security benefit, and the redemption option is important for the participant even it would reduce the level of payments of reverse mortgage to a large extent.