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A new look at reverse mortgages: potential market and institutional constraints

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Author Info

  • Christopher J. Mayer
  • Katerina V. Simons

Abstract

Most elderly hold a significant portion of their non-pension wealth in housing equity. Although they might prefer to use this housing equity to finance current consumption, to pay for an emergency, or to help out a relative in need, utilizing this wealth, would force the sale of their home. Traditional home equity lines of credit require that principal and interest be paid back over a fixed time interval, yet many elderly want to avoid mortgage payments because they live on a limited income. Reverse mortgages hold the promise of helping elderly homeowners out of this bind by allowing them to borrow against their housing equity and receive monthly payments, while still living in their home until they die or choose to move. ; Although reverse mortgages have been offered for more tl~an a decade, the market has never gained significant size. This afticle demonstrates a large potential market for reverse mortgages and discusses demand and supply explanations as to why the current number of reverse mortgages is so small.

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File URL: http://www.bostonfed.org/economic/neer/neer1994/neer294b.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1994)
Issue (Month): Mar ()
Pages: 15-26

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Handle: RePEc:fip:fedbne:y:1994:i:mar:p:15-26

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Keywords: Mortgages;

References

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  1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  2. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
  3. N. Gregory Mankiw & David N. Weil, 1990. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  4. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-46, September.
  5. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-32, August.
  6. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-90, September.
  7. David A. Wise, 1989. "The Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise89-1, October.
  8. Mirer, Thad W, 1979. "The Wealth-Age Relation among the Aged," American Economic Review, American Economic Association, vol. 69(3), pages 435-43, June.
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Cited by:
  1. Gary V. Engelhardt & Christopher J. Mayer, 1995. "Intergenerational transfers, borrowing constraints, and saving behavior: evidence from the housing market," Working Papers 95-11, Federal Reserve Bank of Boston.

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