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Financial Analytics: Science and Experience
 

Supplementary pension formation based on the reverse mortgage financial mechanism

Vol. 8, Iss. 38, OCTOBER 2015

PDF  Article PDF Version

Received: 9 September 2015

Accepted: 17 September 2015

Available online: 24 October 2015

Subject Heading: FINANCIAL INSTRUMENTS

JEL Classification: 

Pages: 53-60

Semenyuk A.G. Agency for Housing Mortgage Lending, Moscow, Russian Federation
ags@ahml.ru

Tsyganov A.A. Financial University under Government of Russian Federation, Moscow, Russian Federation
al_ts@rambler.ru

Subject Developing the system of social protection of Russian citizens, who are older than the working age, is extremely important. The share of people with lower than minimum subsistence level in this category is growing. The main asset of the Russian citizens is real estate they own.
     Objectives The purpose of the study is to show a possibility of safe use of real estate, where pensioners live, to increase their life quality.
     Methods We study the financial mechanism of using the residential property to improve the life quality of its owner; review various methods of involving the only dwelling in the practice of improving the life quality of Russian citizens who are over the working age; compare cash flows from long-term life insurance and reverse mortgage.
     Results The study identifies the basic principles of the reverse mortgage financial mechanism and compares the services of companies engaged in real estate purchase with rent payment or life-long service delivery with reverse mortgage. The pilot project demonstrated that the reverse mortgage is rather susceptible to the rate of interest. Typical Russian problems include low financial and legal literacy of older people, phobias of potential borrowers related to the risk of real estate and funds loss, negative attitude to foreign experience of potential borrowers, who are the representatives of Soviet generations.
     Conclusions Mature financial market will contribute to reverse mortgage development in Russia.

Keywords: social support, pensioners, social protection, reverse mortgage, public-private partnership

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