Aging in Place, Housing Maintenance, and Reverse Mortgages

Cocco, J F and Lopes, P (2020) Aging in Place, Housing Maintenance, and Reverse Mortgages. Review of Economic Studies, 87 (4). pp. 1799-1836. ISSN 0034-6527 OPEN ACCESS

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.

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Item Type: Article
Subject Areas: Finance
Additional Information:

© 2020 Review of Economic Studies Ltd and Oxford University Press. This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Economic Studies following peer review. The version of record: Cocco J F; Lopez P, (2020), 'Aging in Place, Housing Maintenance, and Reverse Mortgages', 87 (4), 1799-1836 is available online at: https://academic.oup.com/restud/article/87/4/1799/5578484 and at: https://doi.org/10.1093/restud/rdz047

Date Deposited: 10 May 2019 15:45
Date of first compliant deposit: 08 May 2019
Subjects: Retirement
Housing
Savings
Last Modified: 05 Nov 2024 02:42
URI: https://lbsresearch.london.edu/id/eprint/1112
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