Abstract
Due to the low mortality rates and decreased fertility, as well as the subsequent increased aging problems, insufficient pensions have become a worldwide serious issue. In addition to traditional resources, such as public and private pensions, commercial annuities, individual savings and investments, reverse mortgages provide a new resource option for retirement. We investigate the application of reverse mortgages to retirement and analyze the risk for both governments and financial institutions of issuing reverse mortgage products. Numerical results show that gender, age, loan rate, the return of house price, and the maximum loan amount have significant impact on the risk of issuing reverse mortgages. These factors are very sensitive to the loss distributions of reverse mortgages, therefore risk management is a crucial means for governments and financial institutions to control the risk of reverse mortgages to avoid huge losses.
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