How to Make Reverse Mortgages More Common in Japan

Elderly two-person nonworking households in Japan have an average monthly income, about ¥40,000, that is insufficient to cover expenses, and must make up the difference by drawing down financial assets. Because of this, reverse mortgages look promising as a tool for elderly homeowners to tap into their home equity without selling their home. Japan's reverse mortgage products do not meet the three conditions commonly met in the US — non-recourse, tenure annuity payments and no repayments during the term — and this is a major reason why they have never caught on. Satisfying those three conditions will require government involvement, as is the case in the US. The author proposes that the government establish an organization to purchase reverse mortgages and thereby bear the collateral risk while making it easier for private-sector financial institutions to obtain funding. Another major reason why reverse mortgages are not more common is that as a rule, only the land can be used as collateral for a reverse mortgage in Japan, while the home itself cannot. If reverse mortgages were to function as a last resort, they might eliminate concerns that the elderly have over a shortage of funds in the future, and the use of such rainy-day savings for consumption could possibly become a catalyst for growth in domestic demand