Reverse Mortgage Loans: A Quantitative Analysis | Zendy

Makoto Nakajima | Zendy; Irina A. Telyukova | Zendy

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Reverse Mortgage Loans: A Quantitative Analysis

Author(s) -

Makoto Nakajima,

Irina A. Telyukova

Publication year - 2011

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.1887466

Subject(s) - mortgage underwriting , shared appreciation mortgage , secondary mortgage market , business , mortgage insurance , financial system , economics , actuarial science , insurance policy , casualty insurance

Reverse 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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