The Impact of the Farmland Reverse Mortgage (FRM) on Rural Elderly Welfare | Chapter 7 | New Advances in Business, Management and Economics Vol. 8

This study aims to introduce the Farmland Reverse Mortgage (FRM) as a welfare policy for elderly individuals in rural areas by enabling the liquidation of farmland that is underutilized or left uncultivated due to labor shortages, despite holding high asset value. An actuarial model was constructed based on the reverse mortgage structure used in housing finance. Historical data from 1989 to 2009 for farmland values, from 2001 to 2009 for interest rates, and from 2009 for mortality rates were used to estimate key parameters such as farmland appreciation rates, loan survival probabilities, and loan termination probabilities. These parameters were applied to the model to calculate a constant monthly payment (pmt) under the condition that the Present Value of Estimated Loss (PVEL) equals the Present Value of Mortgage Insurance Premium (PVMIP). The model shows that, for a borrower aged 65 with ₩100 million in farmland, the estimated monthly payment is ₩246,982; at age 85, it increases to ₩757,379. Risk analysis using 100,000 Monte Carlo simulations demonstrates that lender risk decreases with borrower age, with a 95% value-at-risk ranging from ₩12 million at age 65 to ₩1.9 million at age 85. The proposed FRM model offers a supplemental policy option that may help address the welfare gaps left by South Korea’s existing support programs, including the National Pension Service and the Basic Old-Age Pension.

 

Author(s) Details

Byungkyu Kim
Department of Public Administration, Andong National University, Andong, Republic of Korea.

 

Changhwan Yeo
Department of Urban Planning, Dong-A University, Pusan, Republic of Korea.

 

Deokho Cho
Department of Public Administration, Daegu University, Gyeongsan, Republic of Korea.

 

Please see the book here:- https://doi.org/10.9734/bpi/nabme/v8/5455