Reverse mortgage loans: a quantitative analysis
AbstractReverse mortgage loans (RMLs) allow older homeowners to borrow against housing wealth without moving. In spite of growth in this market, only 2.1% of eligible homeowners had RMLs in 2011. In this paper, we analyze reverse mortgages in a life-cycle model of retirement, calibrated to age-asset profiles. The ex-ante welfare gain from RMLs is sizable at $1,000 per household; ex-post, low-income, low-wealth and poor-health households use them. Bequest motives, nursing-home moving risk, house price risk, and interest and insurance costs all contribute to the low take-up rate. The model predicts market potential for RMLs to be 5.5% of households.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 13-27.
Date of creation: 2013
Date of revision:
Other versions of this item:
- NEP-AGE-2013-06-30 (Economics of Ageing)
- NEP-ALL-2013-06-30 (All new papers)
- NEP-BAN-2013-06-30 (Banking)
- NEP-DEM-2013-06-30 (Demographic Economics)
- NEP-DGE-2013-06-30 (Dynamic General Equilibrium)
- NEP-URE-2013-06-30 (Urban & Real Estate Economics)
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