Retire on the House: The Possible Use of Reverse Mortgages to Enhance Retirement Security

Abstract

This paper focuses on the use of reverse mortgages or home equity conversion mortgages (HECMs) to enhance retirement security. If present trends continue, many American households working today will face a significant retirement funding gap, and this study asks whether reverse mortgages can be used to fill at least some of this estimated gap. This study provides a detailed description of the features and history of reverse mortgages; reviews the existing literature on the motivations people have to use their houses to pay for retirement expenses, especially for long-term services and supports; and, in original empirical simulations, finds that only 12–14 percent of all retired households are suitable for, and might sensibly use, home equity conversion mortgages. The paper concludes with some public policy ideas that would lower costs and increase demand for reverse mortgages, as well as encouraging their use in the United States to improve retirement security.