Introduction of an inheritance-type model in the housing pension program

Despite the growing need to unlock housing wealth among elderly households, participation in the Housing Pension (reverse mortgage) program remains low, at approximately 1.3 percent. A primary explanation for this limited uptake is homeowners’ bequest motives, which are not accommodated by standard housing pension contracts. Although several countries have introduced inheritance-protected reverse mortgage products to address this issue, no such housing pension contracts exist in Korea. This study developed a theoretical framework for inheritance-protected housing pension contracts designed to increase participation among bequest-motivated homeowners. Two alternative contract structures are proposed: a fixed-amount inheritance model, which guarantees a predetermined minimum inheritance upon the borrower’s death, and a fixed-ratio inheritance model, which guarantees heirs a share of the realized housing sale price. The two models differ in their allocation of housing price risk, with the former fully insulating borrowers from price risk and the latter requiring borrowers to bear a portion of the housing price fluctuations. By explicitly incorporating bequest motives into the reverse mortgage contract design, this study provides a theoretical basis for inheritance-protected housing pension products and suggests that their introduction can enhance participation and improve aggregate economic welfare through more efficient use of housing wealth.