Reverse mortgages and financial literacy

Abstract

Few retirees use reverse mortgages. In this paper, we investigate how financial literacy and prior knowledge of the product influence take-up by conducting a stated-preference experiment. We exogenously manipulate characteristics of reverse mortgages to tease out how consumers value them and investigate differences by financial literacy and prior knowledge of reverse mortgages. We find that those with higher financial knowledge are more likely to know about reverse mortgages, not more likely to purchase them at any cost but are more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee.

Valuation of Reverse Mortgages in the Spanish Market for Foreign Residents

“…While the market in several countries has not proven to be as active and viable as the industry had hoped, reverse mortgages have great potential for growth, as shown by the work of Reed and Gibler (2003), Chen et al (2010), Shan (2011), andCosta-Font (2013). This low demand for the product is mainly due to low product awareness and a lack of financial knowledge in the general population (Dillingh et al, 2013;Davidoff et al, 2017;Whait et al, 2019;Choinière-Crèvecoeur & Michaud, 2023). Notably, the penetration of this product in Spain is relatively low compared to other countries, such as the USA and Australia.…”