Working Paper

Reverse mortgage loans: a quantitative analysis


Abstract: Supersedes Working Paper 13-27. Reverse mortgage loans (RMLs) allow older homeowners to borrow against housing wealth without moving. Despite growth in this market, only 2.1% of eligible homeowners had RMLs in 2011. In this paper, the authors analyze reverse mortgages in a calibrated life-cycle model of retirement. The average welfare gain from RMLs is $885 per homeowner. The authors? model implies that low-income, low-wealth, and poor-health households benefit the most, consistent with empirical evidence. Bequest motives, nursing-home-move risk, house price risk, and loan costs all contribute to the low take-up. The Great Recession may lead to increased RML demand, by up to 30% for the lowest-income and oldest households.

Keywords: Reverse Mortgage; Mortgage; Housing; Retirement; Home Equity Conversion Mortgage; HECM;

JEL Classification: D91; E21; G21; J14;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2014-09-08

Number: 14-27

Pages: 40 pages