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

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  • Christopher J. Mayer
  • Katerina 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.

Suggested Citation

  • Christopher J. Mayer & Katerina Simons, 1994. "A new look at reverse mortgages: potential market and institutional constraints," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 15-26.
    • Handle: RePEc:fip:fedbne:y:1994:i:mar:p:15-26
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    File URL: http://www.bostonfed.org/economic/neer/neer1994/neer294b.pdf
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    References listed on IDEAS

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    Cited by:

    1. Engelhardt, Gary V. & Mayer, Christopher J., 1998. "Intergenerational Transfers, Borrowing Constraints, and Saving Behavior: Evidence from the Housing Market," Journal of Urban Economics, Elsevier, vol. 44(1), pages 135-157, July.
    2. Nandinee K. Kutty, 1998. "The Scope for Poverty Alleviation among Elderly Home-owners in the United States through Reverse Mortgages," Urban Studies, Urban Studies Journal Limited, vol. 35(1), pages 113-129, January.
    3. Chiang, Shu Ling & Tsai, Ming Shann, 2016. "Analyzing an elder’s desire for a reverse mortgage using an economic model that considers house bequest motivation, random death time and stochastic house price," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 202-219.
    4. Wei Han & Ping Wang & Hao Xu & June-Sung Choi, 2017. "Evaluation of the Reverse Mortgage Option in Hong Kong," Asian Economic Journal, East Asian Economic Association, vol. 31(2), pages 187-210, June.
    5. 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.

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