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Reverse Mortgages: What Homeowners (Don’t) Know and How It Matters

49 Pages Posted: 21 Nov 2014 Last revised: 24 Oct 2016

Thomas Davidoff

University of British Columbia (UBC) - Sauder School of Business

Patrick Gerhard

Maastricht University

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Date Written: October 24, 2016

Abstract

Reverse mortgages allow elderly homeowners to unlock and consume home equity without leaving their homes. Relative to the number of elderly homeowners with limited financial resources, the take-up rates of reverse mortgages are low. To understand the low take-up rates we first survey U.S. homeowners aged 58 and older assessing their knowledge (literacy) about the most popular reverse mortgage product, the Home Equity Conversion Mortgage (HECM). Next, we study the relationship between knowledge and the intention to use a HECM. Awareness of reverse mortgages is high, but knowledge of contract terms is limited. More knowledgeable homeowners and those with peers who have a reverse mortgage express greater intention to use such a product. Respondents who would benefit most from reverse mortgages (those with low incomes and limited savings) express greater intention to use reverse mortgages, but lack knowledge of the contract terms. Our findings suggest that take-up rates might be increased through improving knowledge about contract terms or changing the product’s design to make it easier to understand in the first place.

Keywords: Reverse Mortgage Demand, Reverse Mortgage Knowledge, Reverse Mortgage Literacy

JEL Classification: D14, D81, G11, G21

Suggested Citation

Davidoff, Thomas and Gerhard, Patrick and Post, Thomas, Reverse Mortgages: What Homeowners (Don’t) Know and How It Matters (October 24, 2016). Available at SSRN: https://ssrn.com/abstract=2528944 or http://dx.doi.org/10.2139/ssrn.2528944

Thomas Davidoff

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Patrick Gerhard

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Thomas Post (Contact Author)

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

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