Seminar: Joao Cocco, London Business School
Reverse Mortgage Design
London Business School
Date: March 21, 2014
Time: 10:00 am - 11:30 am
Location: Room 002
We study the role of housing wealth for the financing of retirement consumption, focusing on the design of the financial products that allow households to tap into their home equity. In our model retirees face multiple sources of risk, including uncertain life span, health risk, medical expenditure shocks, interest rate and house price fluctuations. The model results show that a precautionary savings motive arising from uncertain medical expenditures or a bequest motive have difficulty in generating the high homeownership rates late in life observed in the data. An alternative explanation is that retirees have a strong preference for remaining in the house where they have lived for a number of years. For such individuals the welfare benefits of reverse mortgages can be substantial.
For more information, please contact Karen Robertson at: karen [dot] robertson [at] mcgill [dot] ca.