Equity release contracts with varying payments
Equity release contracts with varying payments
Author(s): Agnieszka MarciniukSubject(s): Economy
Published by: Vysoká škola ekonomická v Praze
Keywords: Equity release contracts; reverse annuity contract; reverse mortgage; valorization rate; spot interest rate; Svensson model
Summary/Abstract: Equity release contracts allow property owners to receive a financial benefit in exchangefor surrendering their real estate to a company. The benefits depend on the life expectancyof owners, the real value of properties, and the rate of interest. These parameters arenot the same throughout the years. The aim of the paper is to analyse varying paymentsof equity release contracts which have already been offered to customers for severalyears in Poland. A recalculation procedure year by year is proposed applying the actuarialand financial methods. This paper estimates the potential advantages of reverse annuityand reverse mortgage contracts in a changing economic environment. The calculationswere made based on actual Polish market data, including the Svensson model of spotinterest rate. It is shown that there is considerable scope for increasing retirement income;however, the exact amounts may be unknown. The advantages for customers resultingfrom changes in parameters and valorization are shown, as well as the risk associated withequity release.
Journal: Prague Economic Papers
- Issue Year: 30/2021
- Issue No: 5
- Page Range: 552-574
- Page Count: 23
- Language: English