João Vinícius de França Carvalho, Gabriel Giuliano Araújo
{"title":"A feasibility analysis of reverse mortgages in Brazil","authors":"João Vinícius de França Carvalho, Gabriel Giuliano Araújo","doi":"10.1016/j.jum.2023.11.003","DOIUrl":null,"url":null,"abstract":"<div><p>In this study, we examine the feasibility of reverse mortgages in Brazil from the perspectives of both policyholders and insurers. Reverse mortgage is a financial product where the property's ownership is transferred to an insurance company in exchange for a guaranteed annuity, while the insured retains the right to use such property until their death. Using monthly real state pricing data (2008–2019) provided by FipeZAP, we employ statistical modeling to predict future prices of properties to get the future insurer's expected results, while policyholders' annuity benefits are calculated using actuarial approach. To assess attractiveness, we calculate internal rate of return for different policyholder profiles and conduct profit test for the insurer. Our results indicate that, as an investment strategy, reverse mortgage has little or no attractiveness to the policyholder despite its actuarial fairness. However, it may be a viable option for increasing retirement income in case of a consistent real estate overvaluation. For insurers, the results are unfeasible due to the extended time lag for positive financial results, which only occurs after the policyholder's death. The inclusion of safety loadings can produce more favorable outcomes. Nonetheless, we recommend incorporating reverse mortgages as an elderly policy strategy to reduce reliance on state support during retirement, even if no attractive returns are provided as a financial investment. We also discuss policy implications (e.g., right to the city) to help the elderly stay connected to social support networks and local services.</p></div>","PeriodicalId":45131,"journal":{"name":"Journal of Urban Management","volume":"13 1","pages":"Pages 74-87"},"PeriodicalIF":3.9000,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S2226585623000900/pdfft?md5=95bbe6ec66e50e9288b771ca4b678d41&pid=1-s2.0-S2226585623000900-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Urban Management","FirstCategoryId":"90","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S2226585623000900","RegionNum":2,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"URBAN STUDIES","Score":null,"Total":0}
引用次数: 0
Abstract
In this study, we examine the feasibility of reverse mortgages in Brazil from the perspectives of both policyholders and insurers. Reverse mortgage is a financial product where the property's ownership is transferred to an insurance company in exchange for a guaranteed annuity, while the insured retains the right to use such property until their death. Using monthly real state pricing data (2008–2019) provided by FipeZAP, we employ statistical modeling to predict future prices of properties to get the future insurer's expected results, while policyholders' annuity benefits are calculated using actuarial approach. To assess attractiveness, we calculate internal rate of return for different policyholder profiles and conduct profit test for the insurer. Our results indicate that, as an investment strategy, reverse mortgage has little or no attractiveness to the policyholder despite its actuarial fairness. However, it may be a viable option for increasing retirement income in case of a consistent real estate overvaluation. For insurers, the results are unfeasible due to the extended time lag for positive financial results, which only occurs after the policyholder's death. The inclusion of safety loadings can produce more favorable outcomes. Nonetheless, we recommend incorporating reverse mortgages as an elderly policy strategy to reduce reliance on state support during retirement, even if no attractive returns are provided as a financial investment. We also discuss policy implications (e.g., right to the city) to help the elderly stay connected to social support networks and local services.
期刊介绍:
Journal of Urban Management (JUM) is the Official Journal of Zhejiang University and the Chinese Association of Urban Management, an international, peer-reviewed open access journal covering planning, administering, regulating, and governing urban complexity.
JUM has its two-fold aims set to integrate the studies across fields in urban planning and management, as well as to provide a more holistic perspective on problem solving.
1) Explore innovative management skills for taming thorny problems that arise with global urbanization
2) Provide a platform to deal with urban affairs whose solutions must be looked at from an interdisciplinary perspective.