Reverse Mortgages and Interest Rate Risk
Posted: 17 May 2000
We develop and apply a valuation model that quantifies the interest rate risk inherent in fixed rate reverse mortgages. Consistent with intuition, our results show that the interest rate risk of a reverse mortgage is greater than that of either a typical coupon bond or a regular mortgage. Somewhat surprisingly, we find that this difference in interest rate risk is extremely large. In fact, the interest rate risk of a reverse mortgage often is several orders of magnitudes greater than the interest rate risk of other fixed-income securities.
JEL Classification: G21, M00
Suggested Citation: Suggested Citation
Boehm, Thomas P. and Ehrhardt, Michael, Reverse Mortgages and Interest Rate Risk. JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION, Vol 22 No 2 Summer, 1994, Available at SSRN: https://ssrn.com/abstract=5582
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