Japanese Aging Citizens take Advantage of the "Interest Only" Reverse Mortgage

The number of applications by Japanese citizens for the nation’s “Reverse 60” reverse mortgage loan program grew by 458 units year-over-year during the period of October-December 2021, coming out to a 44% increase. This is according to data released this month by the Japan Housing Finance Agency (JHF), a government-affiliated mortgage financial institution, and reported on by Tokyo real estate website Rethink Tokyo. Reverse 60 is available to Japanese citizens aged 60 or older as the name implies, and are underwritten by the JHF after the loans are originated on a retail basis.

“Reverse 60 borrowers make monthly interest-only payments,” according to the JHF Integrated Report for 2021. “The loan principal is repayable in full after the borrower’s death. The borrower’s heirs have the option of repaying the principal by using their own funds or by using the proceeds from selling the property loaned upon. Because the monthly payments are interest-only, they are lower than the monthly payments on an equivalent self-amortizing loan.”

The number of loans was 350 in the October-December 2021 period, or 41.7% year-over year. The total amount lent during that period was ¥47.4 billion JPY, which roughly comes out to $41.2 million U.S. dollars based on late February, 2022 exchange rates. The number of institutions in Japan offering a Reverse 60 loan option had also grown 14.5% year-over-year during this period, to 79. Average age of a Reverse 60 applicant was 69 years old, with an annual income of ¥4.14 million JPY (or $36,000 USD). Just over half of tracked borrowers were of pension age in Japan, and 31.2% of use cases were for “custom-built houses” i.e. home modifications.

21.8% of the loans were for refinancing an existing loan. The average requested loan amount was for ¥29 million JPY ($252,000 USD), while the average approved loan amount was ¥16.22 million JPY ($141,000 USD). According to data from the government of Japan, in 2018 the nation had the highest population of elderly citizens compared with anywhere else in the world. Both rural and urban areas are experiencing a more accelerated level of aging for the population in comparison to other countries, which is believed to be caused by a combination of sub-replacement fertility rates and a generally high life expectancy for Japanese citizens.

The country has been experiencing steady population loss since at least 2011, and is expected to be as low as 97 million by 2050 should current trends continue. At last tally, Japan’s total population was 126.2 million in 2020.

(Source: Reverse Mortgage Daily | Pic: Old Man Near Tulips, Aaron Shumaker)

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