Abstract
High borrowing costs, limited knowledge and preferences could explain why few Canadians purchase reverse mortgages, an asset decumulation product that is appealing to those who are house-rich but cash-poor. In this paper, we first use an asset pricing model to calculate the actuarial fair costs of guarantees built into reverse mortgage products in Canada and compare those estimates to prevailing interest rates in the market for these products. We also investigate whether Canadians understand reverse mortgages and whether low demand originates on the preference side by conducting a stated-preference experiment with 3000 Canadians. We manipulate characteristics of reverse mortgages, including the interest rate, to tease out how sensitive Canadians are to these characteristics. Our results suggest that observed interest rates are high relative to actuarially fair rates and that consumers are somewhat price sensitive in addition to demonstrating little knowledge of these products and low demand overall.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
