TY  - UNPD
A1  - Hambel, Christoph
A1  - Kraft, Holger
A1  - Meyer-Wehmann, André
T1  - When should retirees tap their home equity?
T2  - SAFE working paper series ; No. 293
N2  - This paper studies a household’s optimal demand for a reverse mortgage. These contracts allow homeowners to tap their home equity to finance consumption needs. In stylized frameworks, we show that the decision to enter a reverse mortgage is mainly driven by the dierential between the aggregate appreciation of the house price and principal limiting factor on the one hand and the funding costs of a household on the other hand. We also study a rich life-cycle model that can explain the low demand for reverse mortgages as observed in US data. In this model, we analyze the optimal response of a household that is confronted with a health shock or financial disaster. If an agent suers from an unexpected health shock, she reduces the risky portfolio share and is more likely to enter a reverse mortgage. On the other hand, if there is a large drop in the stock market, she keeps the risky portfolio share almost constant by buying additional shares of stock. Besides, the probability to take out a reverse mortgage is hardly aected.
T3  - SAFE working paper - 293 
KW  - reverse mortgage
KW  - consumption-portfolio decisions
KW  - optimal stopping
KW  - biometric risks
KW  - financial disasters
Y1  - 2020
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/55566
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-555665
IS  - Current version: August 27, 2020
PB  - SAFE
CY  - Frankfurt am Main
ER  -