Reverse Mortgage Choices: A Theoretical and Empirical Analysis of the Borrowing Decisions of Elderly Homeowners

This research seeks to explain the determinants of reverse mortgage product choice. Reverse mortgages can potentially be a great benefit to an aging population, but it is important that products be structured to meet the needs of this group.The simulation model developed in this article shows that if the elderly are primarily concerned with the impact of unavoidable expenditure shocks on their standard of living, they are likely to be better off with a line-of-credit plan, which gives them access to a large sum of money, rather than adding an additional fixed component to their income. Support for the theoretical results is given by multinomial logit regressions based on a data set of Home Equity Conversion Mortgages. The empirical results are highly supportive of the predictions from the theoretical model.