Low Demand for Reverse Mortgages in Canada: Price, Knowledge or Preferences?

Ismaël Choinière Crèvecoeur and Pierre-Carl Michaud

Cahiers de recherche / Working Papers from Chaire de recherche sur les enjeux économiques intergénérationnels / Research Chair in Intergenerational Economics

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.

Keywords: reverse mortgages; savings; retirement planning; insurance. (search for similar items in EconPapers)
JEL-codes: G21 R21 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-age, nep-ias and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:rsi:creeic:2107

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