Risk Assessment in the Reverse Mortgage Contract

Changes in demographic structure of a country and economic condition are interconnected causes of new needs that motivate the launch of new financial instruments. One of these is the Reverse Mortgage (RM): a contract in which a homeowner borrows a part or the totality of the future liquidation value of his/her home at the time of his/her death. The paper analyses the contractual details and discusses the impact of the main variables on the lamp sum that an elderly homeowner receives at the inception of the contract. The risks factors that influence the pricing of the RM are both strictly demographic, i.e. the life of the contractor, and financial, in particular the evolution of the real estate market and of the financial market.