Asset-Rich and Cash-Poor: Which Older Adults Value Reverse Mortgages?

25 Pages Posted: 9 Oct 2020

See all articles by Joelle H. Fong

Joelle H. Fong

National University of Singapore

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Benedict S. Koh

Singapore Management University - Lee Kong Chian School of Business

Date Written: June 25, 2020

Abstract

Home equity represents a substantial share of retirement wealth for many older persons, particularly in Asia where national housing policies have encouraged homeownership. This paper explored the potential for reverse mortgages to help ‘asset-rich and cash-poor’ older Singaporeans unlock their home equity while ageing-in-place. The empirical analysis was based on a nationally representative survey of homeowners age 50+ in the 2018 Singapore Life Panel (N=6,258). Our analyses showed that the average older homeowner holds some 60% of total net wealth in housing equity, suggestive of high demand potential for reverse mortgage products. Nevertheless, actual interest in such products was much below potential demand. Only one in four older homeowners indicated interest in commercial reverse mortgages if these were to become available; a larger majority never heard of the financial product. Interest in reverse mortgages was positively associated with product awareness and self-rated product understanding. This implies that a critical step towards building consumer interest would be to enhance awareness of such products and simplify related contract terms. Having a mortgage, fewer children, financial literacy, and preparedness for retirement were also positively associated with interest level. These results have implications for targeted interventions to enhance consumer awareness and spur interest in reverse mortgages, especially in ageing societies where older people have built up substantial equity through the housing market over time.

Keywords: Homeownership, Housing wealth, Financial literacy, Retirement policy

JEL Classification: D14, G11, G21

Suggested Citation

Fong, Joelle H. and Mitchell, Olivia S. and Koh, Benedict S., Asset-Rich and Cash-Poor: Which Older Adults Value Reverse Mortgages? (June 25, 2020). Wharton Pension Research Council Working Paper No. 2020-23, Available at SSRN: https://ssrn.com/abstract=3707526 or http://dx.doi.org/10.2139/ssrn.3707526

Joelle H. Fong (Contact Author)

National University of Singapore ( email )

469C BUKIT TIMAH ROAD, LKYSPP
SINGAPORE, Singapore 259771
Singapore

HOME PAGE: http://https://lkyspp.nus.edu.sg/our-people/faculty/fong-hung-yee-joelle

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Benedict S. Koh

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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