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Reverse mortgages: What homeowners (don’t) know and how it matters

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  • Davidoff, Thomas
  • Gerhard, Patrick
  • Post, Thomas

Abstract

Reverse mortgages allow elderly homeowners to unlock and consume home equity without leaving their homes. Relative to the number of elderly homeowners with limited financial resources, the take-up rates of reverse mortgages are low. To understand the low take-up rates we first survey U.S. homeowners aged 58 and older assessing their knowledge (literacy) about the most popular reverse mortgage product, the Home Equity Conversion Mortgage (HECM). Next, we study the relationship between knowledge and the intention to use a HECM. Awareness of reverse mortgages is high, but knowledge of contract terms is limited. More knowledgeable homeowners and those with peers who have a reverse mortgage express greater intention to use such a product. Respondents who would benefit most from reverse mortgages (those with low incomes and limited savings) express greater intention to use reverse mortgages, but lack knowledge of the contract terms. Our findings suggest that take-up rates might be increased through improving knowledge about contract terms or changing the product’s design to make it easier to understand in the first place.

Suggested Citation

  • Davidoff, Thomas & Gerhard, Patrick & Post, Thomas, 2017. "Reverse mortgages: What homeowners (don’t) know and how it matters," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 151-171.
  • Handle: RePEc:eee:jeborg:v:133:y:2017:i:c:p:151-171
    DOI: 10.1016/j.jebo.2016.11.007
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    Cited by:

    1. Collins, J. Michael & Hembre, Erik & Urban, Carly, 2020. "Exploring the rise of mortgage borrowing among older Americans," Regional Science and Urban Economics, Elsevier, vol. 83(C).
    2. Mohammed Ishaq Mohammed & Noralfishah Sulaiman & Dahiru Adamu, 2018. "Dimensionality and Reliability of the Determinants of Reverse Mortgage Use Intention," Traektoriâ Nauki = Path of Science, Altezoro, s.r.o. & Dialog, vol. 4(2), pages 1013-1023, February.
    3. Murray, Tim, 2019. "Defined benefit pensions and homeownership in the post-Great Recession era," MPRA Paper 92601, University Library of Munich, Germany.
    4. Ruiz, José Luis & Tapia, Pablo & Donoso, José, 2019. "The social and economic effects of introducing reverse mortgages in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    5. Hanewald, Katja & Bateman, Hazel & Fang, Hanming & Wu, Shang, 2020. "Is there a demand for reverse mortgages in China? Evidence from two online surveys," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 19-37.
    6. Wei Han & Ping Wang & Hongjie Dong, 2020. "Influence of Egoistic and Altruistic Bequest Motives on the Willingness to Participate in Reverse Mortgages in China," Asian Economic Journal, East Asian Economic Association, vol. 34(4), pages 430-463, December.
    7. Mohammed Mohammed Ishaq & Sulaiman Noralfishah, 2018. "Determinants of Reverse Mortgage Usage in Malaysia," Real Estate Management and Valuation, Sciendo, vol. 26(3), pages 5-23, September.

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    More about this item

    Keywords

    Reverse mortgage demand; Reverse mortgage knowledge; Reverse mortgage literacy;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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