Patrycja Kowalczyk-Rólczyńska
Wroclaw University of Economics, Poland
Reverse Mortgage as a form of pension security
Reverse mortgage is a financial product which is a form of
Equity Release Schemes.
Under the requirements of the European Commission, for a
service to be classified as an Equity Release Scheme (ERS),
it must meet the following criteria:
 be a financial service,
 be a source of liquidity for the future,
 contain a strong entitlement to remain in occupation of the
property,
 rely solely on the sale of the property for
repayment/payment of the funds released to be used as a
retirement pension
There are two models of ERS arrangements available on the
market:
 the sale model,
 the loan model.
The sale model involves the sale of the property to a third
party, with additional provision of the right for the previous
owner to remain in occupation (home reversion).
The loan model is a form of mortgage-secured loan, with
repayment made from the proceeds from the eventual sale of
the property on the death of the homeowner or after the
property has been vacated for a specified period of time. In
this model, the right to fixed property is transferred to the
crediting institution only after the final demise of the
borrower
Austria, Finland, France, Sweden and Italy offer only the loan model.
Netherlands, Bulgaria and Romania offer only the sale model.
Both models occur in Ireland, Spain, Germany and Hungary.
In Poland:
- The sale model is offered by: Fundusz Hipoteczny
DOM, Fundusz Hipoteczny Familia SA and others.
- The loan model should be offered by banks (according
to Reverse Mortgage Act).
On the world market there are multiple ways to receive
payments from Reverse Mortgage Loan (RML):
 a tenure RML, where borrowers receive a fixed
monthly amount as long as one of the borrowers lives
in the house,
 a term RML, where borrowers receive a fixed amount
for a fixed length of time,
 a line of credit, which allows borrowers to withdraw
flexibly, up to a limit, during a predetermined drawing
period,
 modified tenure and modified term options combine
the line-of-credit RML with tenure and term features,
respectively.
The annual value of fixed-term benefit received in
advance by the person in x age:
RW 0  
b
ax:n
RW0  
- the sum of the reverse mortgage granted, as
percentage of the market value of the property at the
date of the signing of the agreement
n 1
ax:n   v k k p x
k 0
v  1 1  r 
k
px
- discounting factor
- probability of survival by a person in x age of further k years
City
Housing space
(in square
meters)
20-year term benefit for a 65year-old borrower
(in EUR)
The price of
1 square
meter on
the
secondary
housing
market (in
EUR)
Value of a
housing
property (in
EUR)
15-year term benefit for a 65year-old borrower
(in EUR)
Annual
benefit
Monthly
benefit
Annual benefit
Monthly
benefit
Kraków
50
1434
71707
3678
307
3692
308
Poznań
50
1325
66244
3398
283
3411
284
Gdańsk
50
1305
65268
3348
279
3361
280
Warszawa
50
1754
87707
4499
375
4516
376
Wrocław
50
1319
65927
3382
282
3395
283
Wrocław Gaj
50
1157
57857
2968
247
2979
248
Wysoka
50
1401
70065
3594
299
3608
301
Siechnice
50
1028
51384
2636
220
2646
220
Oława
50
751
37544
1926
160
1933
161
Oleśnica
50
826
41317
2119
177
2127
177
City
The price of
1 square
Housing space meter on the
(in square
secondary
meters)
housing
market (in
EUR)
Value of a
housing
property (in
EUR)
20-year term benefit for a 65year-old borrower
(in EUR)
15-year term benefit for a
65-year-old borrower
(in EUR)
Annual benefit
Monthly
benefit
Annual
benefit
Monthly
benefit
Warsaw
50
1754
87707
4499
375
4516
376
Lisbon
50
1800
90000
3415
285
3924
327
Prague
50
3625
181250
7402
617
8357
696
Rome
50
4400
220000
8579
715
9826
819
Milan
50
4600
230000
8969
747
10272
856
Viena
50
4900
245000
8970
748
10398
866
Salzburg
50
2550
127500
4668
389
5411
451
Munich
50
6500
325000
11993
999
13881
1157
Berlin
50
4000
200000
7380
615
8542
712
Monthly pension gap for selected provinces in Poland
Province
Average monthly
salary (in EUR)
Average monthly
pension (in EUR)
Pension gap
(in EUR)
MAZOWIECKIE
1164,24
498,88
-665,36
MAŁOPOLSKIE
871,76
466,78
-404,97
WIELKOPOLSKIE
857,39
467,16
-390,23
KUJAWSKOPOMORSKIE
810,26
451,05
-359,22
DOLNOŚLĄSKIE
943,62
440,38
-503,24
Conclusion
 Additional pension benefits are necessary in the Polish
market
 In big cities pensioners should consider using reverse
mortgage as a pension security (benefits from reverse
mortgage allow keeping up the same level of life)
 Banks should prepare suitable offers
Thank you for your attention