Aging in place, housing maintenance and reverse mortgages
Journal
Review of Economic Studies
Subject
Finance
Publishing details
Authors / Editors
Cocco J;Lopes P
Biographies
Publication Year
2020
Abstract
We study the role of housing wealth in financing retirement consumption. In our model retirees: (i) derive utility benefits from remaining in their home (aging in place); and (ii) choose in each period whether to maintain their house. The evidence that we present shows that these features are important in explaining the saving decisions of the elderly. The costs and the maintenance requirement of reverse mortgages reduce (or eliminate) the benefits of the loans for retirees who wish to do less maintenance. We evaluate the impact of different loan features on retirees' utility, cash-flows to lenders and to the government agency that provides mortgage insurance. We show that combining reverse mortgages with insurance against a forced home sale (e.g. due to a move to a nursing home) is Pareto improving and can lead to increased demand for the loans due to product complementarities.
Available on ECCH
No
