The Analysis of the Reverse Mortgage and Its Applicability to the Russian Market

Developed countries in XX century faced a problem of aging society. The increasing number of elderly people adds the pressure to a state budget, as old people require enhanced social guarantees and make a little impact to the production of GDP. The issue discussed is also pertinent in Russia: Russian pensioners’ level of wealth is lower than mean level in the country. Moreover, there is a reason to expect further decline of wealth in the future: since 2014 Russian Pension Fund has had negative balance of operations. It indicates that the government is unable to handle its obligation, so it can be expected that Russian government would try to diminish its costs by making pension regulation rules stricter. It will inevitably reduce the amount of wealth of elderly people, which makes the issue of searching ways of alternative financing for pensioners even more essential. The paper will consider on of the possible solutions to the problem – reverse mortgage. It is a mechanism that allows elderly people to convert illiquid assets into money. Reverse mortgage is a type of credit product that uses debtor’s property as collateral. Basically, the mechanism works as follows: a bank lends some money to a debtor; later, when the credit reaches its termination date, the bank acquires a right to sell property; then the money gained pay off the bank’s expenses and margin. Before investigating an effect of reverse mortgage implementation it is necessary to establish a mathematical basis. So the main aim of the paper is to create a model which could be used to asses an economic reasonability of introduction of reverse mortgage. With the help of certain techniques (that include an analysis of suitable scientific literature, a regression analysis and a mathematical modeling) the following results were achieved: a model that is able to predict the coordinates of the point of the market equilibrium and predict expected profits of agents operating on the market is constructed.