Aging in place, housing maintenance and reverse mortgages

Joao F. Cocco and Paula Lopes

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study the role of housing wealth in financing retirement consumption. In our model retirees: 1. derive utility benefits from remaining in their home (aging in place); and 2. 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 (RMs) 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 RMs 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.

Keywords: Retirement; Housing wealth; precautionary savings; Aging in place; Property maintenance (search for similar items in EconPapers)
JEL-codes: E21 G21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2019-09-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Review of Economic Studies, 30, September, 2019. ISSN: 0034-6527

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:100835

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