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Title: Interest Accumulation in Retirement Home Equity Products

Citation Type: Miscellaneous

Publication Year: 2010

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Abstract: Reverse mortgages and similar products generally feature negative amortization:no principal or interest payments are made to the lender until the borrower movesout of the home or dies, so the balance due grows with time. This paper shows thatwhen markets are otherwise complete, replacing negative amortization with interest-only payments and mandatory purchase of life annuities su$cient to pay interest onwithdrawals increases lender pro ts and borrower welfare. Rationalizing negative amor-tization requires special combinations of forms of market incompleteness, among whichmay be private information on mortality and exogenous price variation.1 I

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Authors: Davidoff, Thomas

Publisher: University of British Columbia

Data Collections: IPUMS USA

Topics: Aging and Retirement, Other

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