The Reverse Mortgage Loan Pricing Model Based On The Real Estate Value Prediction

Pricing is the key of implementing the reverse mortgage.Price fluctuations of the property and the risk followed is one of the basic elements of reverse mortgage pricing.In this paper, we give a comprehensive and in-depth discussion on the impact of fluctuations in the value of the property to the reverse mortgage product pricing.The paper gives a theoretical introduction of the risk of price fluctuations.On this basis, we divide the real estate market into national and local market to predict the real estate value.In the national market,we collect and collate the real estate price index of our country.After pass an examination we set up an ARMA model to predict the future trend of the real estate price index.According to the model prediction results,without the sudden related policies,land transactions price index will drop slightly;housing sales price index will rise and the rental price index is keeping shocking stably in a short period.In a long term,the three indices will change periodically.In the price analysis of the local market,we select Beijing and Shanghai's residential housing price indices.Examinations show that the two indices having the characteristics of random walk. We adopt the correlation model to predict the future stages of the average real estate prices in the two cities.Prediction results show an upward trend, which is different from the actual situation.By improving the model we reduce the error effectively.Using the prediction of the real estate prices, this paper carry out an empirical testing of the amount of annuity. With reasonable assumptions of the factors related, we use equation derivated to calculate the loan amount in these two markets based on the use of life table probabilities of death.With the calculation,we find that the participation in reverse mortgages can increase disposable income effectively and improve the life quality of the elders after retirement.We also provide recommendations on how to control the risk of fluctuations in the value of the property at last.