Reverse Mortgage Participation in the United States: Evidence from a National Study

Swarn Chatterjee

doi:10.3390/ijfs4010005

Abstract

This paper uses the most recent wave of a nationally representative dataset to examine the factors associated with elderly homeowners’ decision to obtain reverse mortgage loans. The findings of this study suggest that very few homeowners participated in the reverse mortgage market, and homeowners younger than 67 were less likely to have reverse mortgage loans. However, homeowners who were risk averse, and homeowners in the two highest quartiles of net worth were more likely to have reverse mortgage loans. Further analyses reveal that among the reverse mortgage participants, homeowners with long-term care insurance coverage were less likely to have reverse mortgage loans. Implications for financial economists, financial planners, policy-makers, and scholars of retirement economics are included.

Highlights

Reverse mortgage (RM) loans are hybrid financial products that allow elderly homeowners to borrow against the collateral of their housing wealth
The results indicate that approximately 1% of the homeowners above the age of 62 had a reverse mortgage loan
The results of this study reveal several interesting nuances in older homeowners’ decision to have reverse mortgage loans

Summary

Introduction

Reverse mortgage (RM) loans are hybrid financial products that allow elderly homeowners to borrow against the collateral of their housing wealth. Reverse mortgages offer an option for low-income homeowners, who would otherwise not qualify for home equity loans, to borrow money by converting their housing equity [1]. An alternative to borrowing against housing wealth would be for the elderly to sell their homes; the benefit of taking out a reverse mortgage loan instead is that the elderly homeowners do not have to move out or sell their homes to meet their financial obligations. The market for reverse mortgages has been growing steadily, it is still very small, with only about 2% of the eligible elderly homeowners reporting borrowing against their housing wealth [3,4]. Nakajima and Telyukova [4] find that households with low incomes, modest wealth, and poor health were most likely to benefit from reverse mortgages

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