A view of an apartment in Seoul from the Namsan Observatory in Seoul, South Korea. (Image courtesy of Yonhap)
SEOUL, Mar. 4 (Korea Bizwire) – As predictions of declining real estate values gain momentum, the scale of reverse mortgage guarantees in South Korea is set to hit an all-time high this year, signaling an increased adoption among homeowners.
Reverse mortgages, available to individuals over 55, allow homeowners to secure a loan against their property to receive a monthly stipend for retirement living. The expected increase points to a growing number of users turning to this financial safety net.
According to the Korea Housing Finance Corporation, the target for reverse mortgage guarantees this year is projected at a staggering 25.49 trillion won, surpassing the previous record set in 2022 and marking the highest in the program’s history.
This upward revision is influenced by the prolonged downturn in the real estate market, which is anticipated to drive more homeowners towards reverse mortgages. Typically, demand for such schemes rises during periods of falling property values, as homeowners rush to lock in higher monthly payments before their home’s value declines further.
For instance, during the housing price boom of 2020-2021, the number of new reverse mortgages stood at 11,720 and 18,050 respectively. Contrastingly, as prices began to fall in 2022, registrations surged to 14,580, and the trend continued into last year, reaching a record 14,885 applications.
The spike in applications is partly attributed to the expanded eligibility criteria, now including homeowners with properties valued at up to 1.2 billion won and an increase in the maximum loan limit from 500 million to 600 million won, boosting the pension payout.
Between October 12 and the end of November last year, following the changes, new reverse mortgage applications totaled 2,364, with 299 coming from homeowners with properties valued above the previous 1.2 billion won cap, accounting for 12.6% of the total.
In comparison, during the same period in 2022, only 51 out of 2,525 new applicants owned homes exceeding the 1.2 billion won threshold, highlighting a sixfold increase.
As of the end of November last year, the average property value of reverse mortgage participants was 378 million won, with an average age of 72.1 years and a monthly payout of around 1.2 million won.
Starting from the end of this year, the income tax deduction for reverse mortgages will be expanded to include properties valued at up to 1.2 billion won, as announced by the Ministry of Economy and Finance.
This adjustment, part of the ’2023 Tax Law Amendment Decree,’ aims to alleviate the interest burden for reverse mortgage recipients, with an annual deduction limit set at 2 million won.
The revisions also include easing the requirements for interest deductions on reverse mortgages to bolster housing stability for the elderly.
This means residents with pension income receiving reverse mortgages can now deduct applicable interest costs during year-end adjustments or when finalizing their comprehensive income tax returns, starting from this January.
M. H. Lee (mhlee@koreabizwire.com)
