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Explaining why, right or wrong, (Italian) households do not like reverse mortgages


Author Info

  • Elsa Fornero

    (University of Turin, CeRP-Collegio Carlo Alberto and Netspar)

  • Maria Cristina Rossi

    (University of Turin and CeRP-Collegio Carlo Alberto)

  • Maria Cesira Urzì Brancati

    (University of Tor Vergata and CeRP-Collegio Carlo Alberto)


According to economic theory, elderly homeowners should be much more eager than they actually are to adopt financial instruments allowing them to borrow against home equity. This paper investigates the determinants of interest for the Italian elderly in one such instrument, the reverse mortgage. We draw from a unique dataset, UniCredit’s 2007 survey on household savings, and use a discrete choice model (ordered probit) to perform our empirical analysis. Out of 1,200 respondents, roughly 60% claimed to have no interest in the product, while the remaining 40% expressed various degrees of appeal, from quite low to very high. Three main findings emerge from our analysis: first, homeowners who are prepared to sell their home are more likely to be interested in the product. Second, respondents perceive reverse mortgages as personal debt, even though the burden of repaying the loan lies with their heirs, and debt aversion predicts low interest. Third, homeowners who are more concerned about their standard of living in retirement are more likely to be interested in the product. We find, however, no conclusive evidence supporting our a priori notion that greater financial literacy is a predictor of higher interest in RMs.

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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 123.

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Length: 28 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:crp:wpaper:123

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  1. Viola Angelini & Anne Laferrère, 2012. "Residential Mobility of the European Elderly," CESifo Economic Studies, CESifo, CESifo, vol. 58(3), pages 544-569, September.
  2. Lusardi, Annamaria & Mitchell, Olivia S., 2006. "Baby boomer retirement security: The roles of planning, financial literacy, and Housing wealth," CFS Working Paper Series, Center for Financial Studies (CFS) 2006/20, Center for Financial Studies (CFS).
  3. Chiuri, Maria Concetta & Jappelli, Tullio, 2008. "Do the elderly reduce housing equity? An international comparison," CFS Working Paper Series, Center for Financial Studies (CFS) 2008/20, Center for Financial Studies (CFS).
  4. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
  5. Mitchell, Olivia S. & Piggott, John, 2004. "Unlocking housing equity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(4), pages 466-505, December.
  6. Albert Ando & Luigi Guiso & Daniele Terlizzese, 1993. "Dissaving by the Elderly, Transfer Motives and Liquidity Constraints," NBER Working Papers 4569, National Bureau of Economic Research, Inc.
  7. Hui Shan, 2009. "Reversing the trend: the recent expansion of the reverse mortgage market," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2009-42, Board of Governors of the Federal Reserve System (U.S.).
  8. Luigi Guiso & Tullio Jappelli, 2009. "Financial Literacy and Portfolio Diversification," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 212, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, vol. 80(C), pages 62-75.
  10. Fornero, Elsa & Monticone, Chiara, 2011. "Financial literacy and pension plan participation in Italy," Journal of Pension Economics and Finance, Cambridge University Press, Cambridge University Press, vol. 10(04), pages 547-564, October.
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Cited by:
  1. Xu, Lisa & Zia, Bilal, 2012. "Financial literacy around the world : an overview of the evidence with practical suggestions for the way forward," Policy Research Working Paper Series, The World Bank 6107, The World Bank.


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