Reverse Mortgage Loans: A Quantitative Analysis
40 Pages Posted: 12 Sep 2014
Date Written: September 8, 2014
Reverse mortgage loans (RMLs) allow older homeowners to borrow against housing wealth without moving. Despite growth in this market, only 2.1% of eligible homeowners had RMLs in 2011. In this paper, the authors analyze reverse mortgages in a calibrated life-cycle model of retirement. The average welfare gain from RMLs is $885 per homeowner. The authors’ model implies that low-income, low-wealth, and poor-health households benefit the most, consistent with empirical evidence. Bequest motives, nursing-home-move risk, house price risk, and loan costs all contribute to the low take-up. The Great Recession may lead to increased RML demand, by up to 30% for the lowest-income and oldest households.
Keywords: Reverse Mortgage, Mortgage, Housing, Retirement, Home Equity Conversion Mortgage, HECM
JEL Classification: D91, E21, G21, J14
Suggested Citation: Suggested Citation