Seniors’ Home Equity Extraction: Credit Constraints and Borrowing Channels
46 Pages Posted: 4 Feb 2016 Last revised: 18 Apr 2018
Date Written: March 22, 2017
Households borrow against home equity through different channels: closed end home equity loans or revolving lines of credit, cash-out refinancing, and—for senior homeowners—reverse mortgages. The objective of this study is to identify the factors that affect seniors’ home equity borrowing by channel, focusing on the effect of house price dynamics and credit constraints. Ours is the first study to model the choice of reverse mortgages alongside other modes of equity borrowing. Our primary finding is that as home equity levels increase, cash-out refinancing and reverse mortgages increase in credit-constrained areas, while HELOCs increase in less-credit-constrained areas.
Keywords: equity extraction, mortgages, home equity, household finance, reverse mortgages
JEL Classification: D12, R21, G21, J14
Suggested Citation: Suggested Citation