Reverse Mortgage Loans: A Quantitative Analysis

35 Pages Posted: 13 Jun 2013

See all articles by Makoto Nakajima

Makoto Nakajima

Federal Reserve Bank of Philadelphia

Irina A. Telyukova

University of California, San Diego

Multiple version iconThere are 3 versions of this paper

Date Written: June 4, 2013

Abstract

Reverse mortgage loans (RMLs) allow older homeowners to borrow against housing wealth without moving. In spite of growth in this market, only 2.1% of eligible homeowners had RMLs in 2011. In this paper, we analyze reverse mortgages in a life-cycle model of retirement, calibrated to age-asset profiles. The ex-ante welfare gain from RMLs is sizable at $1,000 per household; ex-post, low-income, low-wealth and poor-health households use them. Bequest motives, nursing-home moving risk, house price risk, and interest and insurance costs all contribute to the low take-up rate. The model predicts market potential for RMLs to be 5.5% of households.

Keywords: Reverse Mortgage, Mortgage, Housing, Retirement, Home Equity Conversion Mortgage, HECM

JEL Classification: D91, E21, G21, J14

Suggested Citation

Nakajima, Makoto and Telyukova, Irina, Reverse Mortgage Loans: A Quantitative Analysis (June 4, 2013). FRB of Philadelphia Working Paper No. 13-27, Available at SSRN: https://ssrn.com/abstract=2278370 or http://dx.doi.org/10.2139/ssrn.2278370

Makoto Nakajima (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Irina Telyukova

University of California, San Diego ( email )

9500 Gilman Drive
San Diego, CA 92093
United States

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