Over 1,800 seniors took out JTYK loans in last two years, 3.5 times the number in U.S.

On average, borrowers are 73 years old and own a home worth KRW 270 million.

The initial Jootaekyeonkeum (JTYK) reverse mortgage, which gives senior citizens lifelong pension against the value of their home, has shown an initial establishment rate that is more than 3 times that of the reverse mortgage plan in the U.S. 

According to the Korea Housing Finance Corporation (KHFC, CEO Joo-jae Lim), the number of borrowers reached 1,866 people as of July 10, 2009, only two years after the scheme was first introduced on July 12, 2007. Following a lag in 2008, the number of new JTYK loans has been steadily increasing in 2009, with over 100 loans taken out each month in the last four consecutive months (March-June).

In comparison, the U.S. Home Equity Conversion Mortgage (HECM), which was used as a benchmark for JTYK, had 546 loans taken out in the first two years of its establishment in October 1989. The first three years saw 1,565 loans. Comparing the number of loans in the first two years, JTYK has successfully awarded 3.5 times more loans than HECM. Even though the perception of homes as inheritance and children's dependence on parental financial support are relatively lower in the U.S., reverse mortgage loans are expanding at a much higher rate in Korea.

Some of the factors contributing to JTYK's rapid emergence as a safety net for senior citizens include: the change in traditional views of home property as inheritance as the nuclear family becomes more pervasive in society; people failing to prepare themselves for old age as the majority of their income goes into family support and child education while they are economically active; and reduced financial support from their children due to the economic depression. 

Other contributing factors are the lowering of the minimum age requirement (from 65 to 60), the raising of the credit limit (from KRW 300 million to KRW 500 million), the reducing of the initial cost (by exempting the special tax for rural development), and the increasing of the withdrawal limit (from 30% to 50%) among other deregulatory measures and institutional improvements. 

◇ Major changes instituted to JTYK since its introduction (Summary)

An analysis of JTYK loans over the last two years shows that the average age of borrowers is 73 years old (for couples, the age of the younger spouse), which is one year younger than the average age of borrowers in the first year of the plan (74 years old). Borrowers in their 70s account for 55.7% of the total, those in their 60s account for 27.7%, and those in their 80s represent 16.6%.   

With the upward adjustment in the limit of home equity value (from KRW 600 million to KRW 900 million) as of October 2008, the average value of mortgaged homes is KRW 266 million, an increase of 10% compared to the KRW 241 million in the first year of the JTYK plan. In terms of home equity value, 28.6% are between KRW 100 million and KRW 200 million, 25% are between KRW 200 million and KRW 300 million, and 15% are between KRW 300 million and KRW 400 million. Home equity values of less than KRW 100 million account for 12.3%, while 10.4% were medium- to high-priced homes with values between KRW 500 million and KRW 900 million. 

By type of housing, apartments take the largest share with 83.3%, followed by detached houses (10.5%), multi-units (3.4%), and row houses (2.6%). In terms of home size, 79.9% are 85m² or below, and 78.7% of homes are located in the Seoul Metropolitan area (Seoul, Incheon, and Gyeonggi-do area). 

The average monthly payment is KRW 1.01 million, an increase by KRW 40,000 (3.9%) from KRW 970,000 in the first year of the JTYK plan. In terms of monthly payments, 38.5% are between KRW 500,000 and KRW 1 million, 21.5% are between KRW 1 million and KRW 1.5 million, 20.4% are below KRW 500,000, 11.5% are between KRW 1.5 million and KRW 2 million, and 6.8% are between KRW 2 million and KRW 3 million.