An Approximation Approach for Valuing Reverse Mortgages in Thailand

Abstract

This paper investigates reverse mortgage in Thailand in terms of the mortgage’s principles, details and condition s for applying the reverse mortgage in Thailand. Additionally, the paper investigates the new way to calculate the annuity which will promote its popularity by using mortality table. We adopts the principle of actuarial present value to calculate present value of reverse mortgage in Thailand. We found that reverse mortgage is only available to the borrowers aged 60 and above, and those who have their own homes for living purposes, not for commercial. From our study, the potential size of demand is approximately 643,950 persons. The special characteristic of the loan is the steam of borrower’s income (bank payment) which might terminate when the borrowers age 85 and above. Also, this payment will stop when the existing loan balance is greater than that of the credit line. We can summarize that new way of calculation can make the yields increase by 26.51%. The study suggests banks and financial institutes the new approach of calculating reverse mortgage to improve both financial products and services.