Quickly established as a major axis of Korea’s safety net for retired life, JTYK celebrates its sixth anniversary

- A total of 14,866 households have joined the reverse mortgage loan over the past six years since its launch in July 2007 through last June

- Eased requirements for subscription and other improvements have been made to the scheme to provide more substantial support to the retirees

- JTYK has contributed to changing the public awareness of housing inheritance and stabilizing people’s lives after retirement

- An average JTYK user is 72.3 years old, receiving 1.03 million won in pension benefits out of his/her housing worth 280 million won

On July 23, the Korea Housing Finance Corporation (HF, CEO Seo Jong-dae) announced that a total of 14,866 households have joined JooTaekYeonKeum (JTYK) since its launch through the end of last June, with the reverse mortgage loan scheme quickly establishing itself as a major axis of Korea’s safety net for retired life.

 * The American public reverse mortgage scheme, the Home Equity Conversion Mortgage (HECM) attracted 11,060 subscribers in the six years following its launch in 1989.

The key reasons why JTYK has taken root this quickly include: (a) the unique asset portfolio of Korean households in which real estate accounts for over 80%; (b) the change in public awareness of housing inheritance; and (c) the continued improvements to the scheme, including eased requirements for subscription and the development of wide-ranging pension payment options.

□ Eased requirements for subscription and other improvements to the scheme have led to a growing number of JTYK users

At the time of its launch, only those elderly households where both the husband and the wife were 65 or older were eligible to join JTYK. In April 2009, however, the minimum age for subscription was lowered to 60 for both the husband and the wife. The maximum price of housing offered as collateral has also been raised. At first, only “general housing” under the Housing Act worth less than 600 million won were eligible for JTYK subscription, but now JTYK is open for general housing worth up to 900 million won in addition to elderly welfare housings.

The options for pension payments have also been diversified. At the time of its launch, JTYK only offered the “fixed payment” option, which provides the same amount of benefits throughout the pensioners’ lives. Since then, a wide variety of options have become available, including an “increasing payment” that better prepares the beneficiaries for inflation, and a “decreasing payment” and “two-phase payment” for those who need to spend a considerable amount of money immediately after their retirement. This has given JTYK users greater choices to suit suiting their consumption patterns and financial situations. On top of this, the Early-Subscription JTYK—a support scheme for the “house poor” struggling to repay their mortgage loans—provides up to 100% of their maximum pension benefits in one lump sum.

□ JTYK has contributed to changing the public awareness of housing inheritance and stabilizing people’s lives after retirement

According to the “2013 JooTaekYeonKeum Demand Survey” conducted by HF this year, 25.7% of general elderly households were unwilling to hand down their housing to their children, representing a sharp increase from the 12.7% in 2008.

In fact, housing accounts for 92.8% of the entire assets of JTYK users surveyed, who explained they joined the scheme because they: (a) did not want to turn to their children for living expenses (87.0%); and (b) had no other option to fund their later lives (85.7%).

“Amid a continued increase in life expectancy, both parents and their children are living longer, so their preference for housing inheritance will likely weaken further in the years to come,” said one HF official.

□ An average JTYK user is 72.3 years old, receiving 1.03 million won in pension benefits out of his/her housing worth 280 million won

An analysis of who has been subscribing to JTYK over the past six years following the scheme’s launch shows that average JTYK users are 72.3 years old (in the case of married couples, the younger spouse’s age serves as the basis), joining the reverse mortgage loan with housing worth 280 million won and receiving 1.08 million won in monthly benefits.

In the breakdown of JTYK users by age, those in their 70s take up the largest share at 49.6%, followed by those in their 60s (35.2%) and those aged 80 or older (15.2%).

“Until two or three years ago, those in their 60s accounted for only 30% of JTYK users. In the wake of early retirement and the economic downturn, however, the figure increased to nearly 40% this year, with the average age of subscribers lowered to 71.6 years old. The launch of the Early-Subscription JTYK on June 3, coupled with the minimum age for subscription being lowered to 60 for the registered home owners, will further drive down the average age for subscription,” explained the official.

When it came to the amount of monthly pension benefits received by JTYK users, the most common range was 0.5-1 million won (41.8%), followed by 1-1.5 million won (21.1%), less than 0.5 million won (18.6%), 1.5-2 million won (9.7%) and 2-3 million won (6.6%).

“With the rapid aging of the Korean population and the retirement of baby boomers, the demand for JTYK will continue to grow,” the HF official forecasted. “We at HF will make the reverse mortgage loan more customer-friendly while staying committed to ensuring the financial soundness of the pension.”