[The Editors' Verdict] For a 2% Reverse Mortgage Enrollment Rate

"Does it make sense to mortgage your house just to have a little more spending money?"

This was the answer I received when I suggested a reverse mortgage to my father. A junior colleague, who is raising two children and struggling financially, also recommended a reverse mortgage to her parents. She expressed her disappointment, saying, "Other children avoid having their parents sign up for a reverse mortgage because they want to inherit the house, but no one understands my intentions."

A reverse mortgage is a product that allows homeowners to receive a loan secured by their home, paid out monthly in the form of a pension. The principal and interest are repaid in a lump sum when the contract ends. Because it provides a fixed monthly payment, it offers a stable lifestyle. With life expectancy rising and growing interest in a secure retirement, more people are considering reverse mortgages as an option. However, as of October 2024, the enrollment rate is only 1.89% of eligible households (a total of 133,364 cases). This is a strikingly low figure, especially considering that 78.2% of elderly households (according to the 2023 Housing Status Survey) are considered eligible for a reverse mortgage.

The prevailing sentiment among the older generation is, "Even if I have to go without, I will keep my house." For the elderly, tangible assets account for 85.1% of their total assets. The only country with a higher rate is Italy (86.5%, Korea Development Institute, 2023). Despite these substantial assets, the poverty rate among the elderly in Korea reached 39.7% in 2022. According to the Household Financial Welfare Survey, which provides a more in-depth look at the situation, 57% of elderly respondents said they lacked sufficient living expenses. These living expenses include medical costs. The Capital Market Institute estimated that the appropriate annual consumption for a two-person elderly household is 16.25 million won. This is close to the minimum cost of living, yet actual consumption is estimated to be about 2 million won less than this amount.

Given such a strong attachment to their homes, is it realistic to expect people to take out a reverse mortgage just to receive more living expenses each month? Once enrolled in this product, homeowners can no longer use their house to increase asset value, and it becomes difficult to leave the home fully to their heirs. Even if they accept that any increase in home value after taking out the mortgage is lost, the inability to pass the house on to their children in full becomes a source of intergenerational conflict. This is clearly reflected in a Bank of Korea survey conducted from August to October 2024, which targeted 3,820 homeowners aged 55 to 79 nationwide. Respondents cited several reasons for hesitating to enroll: the likelihood that the total pension received will be less than the value of the home (18.2%), the fact that increases in home value after enrollment are not reflected in pension payments (15.1%), and the inability to fully pass the home on to their children (15.1%).

This shows that the conflict is not due to a lack of persuasive power from the younger generation, nor a lack of understanding from parents. Rather, it suggests that institutional improvements could help bridge the gap. The Bank of Korea observed that if the three obstacles identified in the survey are resolved, up to 340,000 elderly people living in poverty could be lifted out of poverty.

Reducing elderly poverty is not the only benefit. Expanding pension income increases the capacity for consumption and savings, which can act as a catalyst for revitalizing the broader economy. The Bank of Korea expects that this could raise the country’s gross domestic product (GDP) by 0.5 to 0.7%. This means that not only does each individual’s life become more stable, but the national economy also receives a significant boost.

Mortgaging one’s house for a stable retirement does make sense. The urgent task for the government is to make this more persuasive.

This content was produced with the assistance of AI translation services.