Reverse mortgages in the nation of South Korea appear to have an overriding focus on seniors who live in high-rise apartments, according to new data from the Korea Housing Finance Corp. published by regional news publication the Korea Herald. This has prompted concerns in the country about whether or not the reverse mortgage program there has an equitable level of access between the nation’s more and less wealthy seniors.
From January through August 2020, 6,636 reverse mortgage contracts were signed through South Korean banks. Among the properties offered as collateral for those loans, 5,273 of them were high-rise apartments, coming out to 79.5% of the total being reserved for the generally-expensive property type.
“[O]wners of detached homes signed only 552 such contracts,” the Korea Herald report explains. “Owners of units in low-rise, multi-residential housing accounted for 573 reverse mortgage contracts, while retirement community housing and mixed-use buildings accounted for 35 and 21, respectively.”
The trend toward reverse mortgages on high-rise apartments in the nation has been predominant since at least 2016, and that year apartment owners made up over 84% of reverse mortgage customers. The figure has been steadily declining since then, but still remains very nearly at 80% of all reverse mortgage contracts being signed by South Koreans suggesting that reverse mortgages are used more by wealthier borrowers in that country than they are in the United States.
“The data fueled concerns about inequality, as high-rise accommodation is typically owned by wealthy people,” the story reads. “The lack of reverse mortgages issued for other kinds of housing could indicate that poorer people are losing out. Onlookers say that it may be a different type of inequality in which banks prefer apartments as collateral when assessing applicants.”
South Korea’s reverse mortgage program – known as JooTaekYeonKeum (JTYK), which roughly translates to “housing pension” in English – was introduced in 2007, and is sponsored by the nation’s government. The program is specifically designed to address issues of cash flow for Korean seniors, comes with a government servicing guarantee, as well as an additional tax credit in which a borrower’s property taxes are reduced by 25%.
The program is open to Korean homeowners aged 55 and older at the time of the loan application. It is primarily designed for those who own a single property, but owners of more than one property can still get a reverse mortgage if the combined value of the properties does not exceed KRW 900 million (roughly $778,000 USD).
Borrowers who own multiple properties with a combined value of over $778,000 USD can still get a reverse mortgage if they pledge to relinquish ownership of their other properties within three years of their JTYK origination.
Read the article at the Korea Herald.
