Reverse Mortgages as Retirement Financing Instrument: An Option for “Asset-rich and Cash-poor” Singaporeans
The unique way of financing housing through the mandatory savings system in Singapore has created a class of “asset-rich and cash-poor” Singaporeans. This paper provides a framework to assess the viability of a reverse mortgage (RM) market so that such instruments may be harnessed as a source of financing retirement income for home owners. Based on different cost of capital, we estimate the probability of loss for both the private supplier and public provider of RMs. The probability of loss is computed by three major components: choice of replacement ratio and property growth rate; forecast of cohort survival probability by joint-life; and generation of yield curves to discount the future cash flows. The stochastic forecast of survival probability is estimated using the Lee-Carter demographic model based on the abridged life tables. The discount factor for future cash flows are generated from stochastic interest rates. Our simulation results indicate that based on the benchmark scenario, RM instruments by private providers are likely to achieve about 50% replacement ratio for the 4-room public housing owners. However, the market may be missing if a replacement ratio of 70% is required.
|Date of creation:||Apr 2005|
|Contact details of provider:|| Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Venti, Steven F. & Wise, David A., 1991.
"Aging and the income value of housing wealth,"
Journal of Public Economics,
Elsevier, vol. 44(3), pages 371-397, April.
- Steven F. Venti & David A. Wise, 1990. "Aging and the Income Value of Housing Wealth," NBER Working Papers 3547, National Bureau of Economic Research, Inc.
- Ruth Hancock, 1998. "Can housing wealth alleviate poverty among Britain's older population?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(3), pages 249-272, August.
- Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
- Christopher J. Mayer & Katerina V. Simons, 1994. "Reverse Mortgages and the Liquidity of Housing Wealth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 235-255.
- Chia, Ngee-Choon & Tsui, Albert K.C., 2005. "Medical savings accounts in Singapore: how much is adequate?," Journal of Health Economics, Elsevier, vol. 24(5), pages 855-875, September.
- Ngee-Choon Chia & Albert K C Tsui, 2005. "Medical Savings Accounts in Singapore : How much is adequate?," Finance Working Papers 22567, East Asian Bureau of Economic Research.
- Ngee-Choon Chia & Albert K C Tsui, 2005. "Medical Savings Accounts in Singapore: How much is adequate?," SCAPE Policy Research Working Paper Series 0502, National University of Singapore, Department of Economics, SCAPE.
- Christopher J. Mayer & Katerina Simons, 1993. "Reverse mortgages and the liquidity of housing wealth," Working Papers 93-5, Federal Reserve Bank of Boston.
- John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters,in: Theory Of Valuation, chapter 5, pages 129-164 World Scientific Publishing Co. Pte. Ltd..
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- Chia, Ngee Choon & Tsui, Albert K. C., 2003. "Life annuities of compulsory savings and income adequacy of the elderly in Singapore," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(01), pages 41-65, March.
- Nandinee K. Kutty, 1998. "The Scope for Poverty Alleviation among Elderly Home-owners in the United States through Reverse Mortgages," Urban Studies, Urban Studies Journal Limited, vol. 35(1), pages 113-129, January.
- Mitchell, Olivia S. & Piggott, John, 2004. "Unlocking housing equity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(4), pages 466-505, December.
- Olivia S. Mitchell & John Piggott, 2004. "Unlocking Housing Equity in Japan," NBER Working Papers 10340, National Bureau of Economic Research, Inc.
- Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
- Marie-Eve Lachance & Olivia S. Mitchell & Kent Smetters, 2003. "Guaranteeing Defined Contribution Pensions: The Option to Buy Back a Defined Benefit Promise," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(1), pages 1-16.
- Marie-Eve Lachance & Olivia S. Mitchell, 2002. "Guaranteeing Defined Contribution Pensions: The Option to Buy-Back a Defined Benefit Promise," NBER Working Papers 8731, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:sca:scaewp:0503. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.