The Study on the Launch of Farmland Reverse Mortgage for the Welfare of the Rural Elderly in South Korea

This study aims to launch farmland reverse mortgage for the welfare of the elderly in rural area by liquidating the farmland which produces little product or left uncultivated due to the labor shortage though the farmland value is relatively high for the first time around the world. We build the actuarial model based on Housing Equity Conversion Mortgage(HECM) model suggested by Rodda et al(2000;2003). Basic factors such as interest rates and farmland value rising rates, which are applied to the actuarial model for estimating a constant monthly payment that the borrowers can gain under the condition that Present Value of Estimated Loss(PVEL) is equal to Present Value of Mortgage Insurance Premium(PVMIP), are elaborated with historical data. Based on the established model, monthly payment is calculated according to the borrower’s age and her farmland value using trial and error method. Then risk that the lender bears depending on the fluctuation of interest rates is predicted. We provide one more policy option for the elderly in rural area that covers the deficiency which is not fulfilled by existing national pension services, basic old age pension, and other government welfare policies by suggesting the initiation of FRM.