Abstract
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 life-long 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.
Highlights
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
Reverse mortgage is a group of loan products that have one major peculiarity in common: real estate owned by a borrower is used a pledge for the loan that is received by a borrower as an annuity, line of credit, one-time payment or a combination
One of the peculiarities of reverse mortgage loan is that a bank does not receive a right of possession over a lender’s real estate: it only serves as a collateral, meaning that a bank is not allowed to dispose of lender’s property other than in case of loan termination
Summary
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. Even though it appeared later, the same problem emerged in Russia This issue leads to several considerable economic repercussions that have to be addressed by the government. One of the peculiarities of reverse mortgage loan is that a bank does not receive a right of possession over a lender’s real estate: it only serves as a collateral, meaning that a bank is not allowed to dispose of lender’s property other than in case of loan termination. Reverse mortgages were primarily issued with governmental support They were subsidized by state governments or local administrations and allowed poor pensioners to borrow money with very low interest rates. In the mid-80s reverse mortgages boomed, as real estate prices soared: most American commercial banks started providing reverse mortgage loans, making them a full scale financial product
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