The Psychology and Economics of Reverse Mortgage Attitudes: Evidence from the Netherlands

W.F. Dillingh, Henriette Prast, M. Rossi, C. Urzi Brancati

Research output: Book/ReportReportProfessional

Abstract

We find that among Dutch homeowners there is substantial potential interest in reverse mortgages, especially for the purpose of being able to live more comfortably and not worry about money until death, or to make a significant expenditure— on e.g. home improvements or traveling. Our regression results, based on rich survey data, indicate that interest depends positively on the ratio of housing wealth over income and on the perceived riskiness of future pensions, and negatively on the expected replacement ratio. We find that giving examples of using a reverse mortgage for the benefit of the homeowners’ (grand)children significantly raises interest in reverse mortgages of people with a bequest wish. We interpret this as evidence that people are unaware of the potential of reverse mortgages to optimize bequest timing. Confronting our results with a similar study among Italian homeowners, we conclude that while in Italy a reverse mortgage is primarily seen as a “last resort”, Dutch homeowners regard it as a potential retirement planning tool. However, a reverse mortgage is a relatively complicated financial product that entails certain risks and can be quite expensive. Rules and regulations concerning reverse mortgages should be in place, to prevent mis-selling. The government can play a role in providing safeguards for both borrowers and lenders, in order to support the development of a reverse mortgage market.
Original languageEnglish
Place of PublicationTilburg
PublisherNETSPAR
Number of pages54
Volume38
Publication statusPublished - 2015

Publication series

NameNetspar Industry Paper
Volume38

Fingerprint

Psychology and economics
Mortgages
The Netherlands
Bequests
Survey data
Resorts
Italy
Mortgage market
Financial products
Housing wealth
Income
Safeguards
Riskiness
Retirement planning
Government
Expenditure
Pensions
Replacement

Cite this

Dillingh, W. F., Prast, H., Rossi, M., & Urzi Brancati, C. (2015). The Psychology and Economics of Reverse Mortgage Attitudes: Evidence from the Netherlands. (Netspar Industry Paper; Vol. 38). Tilburg: NETSPAR.
Dillingh, W.F. ; Prast, Henriette ; Rossi, M. ; Urzi Brancati, C. / The Psychology and Economics of Reverse Mortgage Attitudes : Evidence from the Netherlands. Tilburg : NETSPAR, 2015. 54 p. (Netspar Industry Paper).
@book{607676f6691b4325ac5f194145d259b2,
title = "The Psychology and Economics of Reverse Mortgage Attitudes: Evidence from the Netherlands",
abstract = "We find that among Dutch homeowners there is substantial potential interest in reverse mortgages, especially for the purpose of being able to live more comfortably and not worry about money until death, or to make a significant expenditure— on e.g. home improvements or traveling. Our regression results, based on rich survey data, indicate that interest depends positively on the ratio of housing wealth over income and on the perceived riskiness of future pensions, and negatively on the expected replacement ratio. We find that giving examples of using a reverse mortgage for the benefit of the homeowners’ (grand)children significantly raises interest in reverse mortgages of people with a bequest wish. We interpret this as evidence that people are unaware of the potential of reverse mortgages to optimize bequest timing. Confronting our results with a similar study among Italian homeowners, we conclude that while in Italy a reverse mortgage is primarily seen as a “last resort”, Dutch homeowners regard it as a potential retirement planning tool. However, a reverse mortgage is a relatively complicated financial product that entails certain risks and can be quite expensive. Rules and regulations concerning reverse mortgages should be in place, to prevent mis-selling. The government can play a role in providing safeguards for both borrowers and lenders, in order to support the development of a reverse mortgage market.",
author = "W.F. Dillingh and Henriette Prast and M. Rossi and {Urzi Brancati}, C.",
year = "2015",
language = "English",
volume = "38",
series = "Netspar Industry Paper",
publisher = "NETSPAR",

}

Dillingh, WF, Prast, H, Rossi, M & Urzi Brancati, C 2015, The Psychology and Economics of Reverse Mortgage Attitudes: Evidence from the Netherlands. Netspar Industry Paper, vol. 38, vol. 38, NETSPAR, Tilburg.

The Psychology and Economics of Reverse Mortgage Attitudes : Evidence from the Netherlands. / Dillingh, W.F.; Prast, Henriette; Rossi, M.; Urzi Brancati, C.

Tilburg : NETSPAR, 2015. 54 p. (Netspar Industry Paper; Vol. 38).

Research output: Book/ReportReportProfessional

TY - BOOK

T1 - The Psychology and Economics of Reverse Mortgage Attitudes

T2 - Evidence from the Netherlands

AU - Dillingh, W.F.

AU - Prast, Henriette

AU - Rossi, M.

AU - Urzi Brancati, C.

PY - 2015

Y1 - 2015

N2 - We find that among Dutch homeowners there is substantial potential interest in reverse mortgages, especially for the purpose of being able to live more comfortably and not worry about money until death, or to make a significant expenditure— on e.g. home improvements or traveling. Our regression results, based on rich survey data, indicate that interest depends positively on the ratio of housing wealth over income and on the perceived riskiness of future pensions, and negatively on the expected replacement ratio. We find that giving examples of using a reverse mortgage for the benefit of the homeowners’ (grand)children significantly raises interest in reverse mortgages of people with a bequest wish. We interpret this as evidence that people are unaware of the potential of reverse mortgages to optimize bequest timing. Confronting our results with a similar study among Italian homeowners, we conclude that while in Italy a reverse mortgage is primarily seen as a “last resort”, Dutch homeowners regard it as a potential retirement planning tool. However, a reverse mortgage is a relatively complicated financial product that entails certain risks and can be quite expensive. Rules and regulations concerning reverse mortgages should be in place, to prevent mis-selling. The government can play a role in providing safeguards for both borrowers and lenders, in order to support the development of a reverse mortgage market.

AB - We find that among Dutch homeowners there is substantial potential interest in reverse mortgages, especially for the purpose of being able to live more comfortably and not worry about money until death, or to make a significant expenditure— on e.g. home improvements or traveling. Our regression results, based on rich survey data, indicate that interest depends positively on the ratio of housing wealth over income and on the perceived riskiness of future pensions, and negatively on the expected replacement ratio. We find that giving examples of using a reverse mortgage for the benefit of the homeowners’ (grand)children significantly raises interest in reverse mortgages of people with a bequest wish. We interpret this as evidence that people are unaware of the potential of reverse mortgages to optimize bequest timing. Confronting our results with a similar study among Italian homeowners, we conclude that while in Italy a reverse mortgage is primarily seen as a “last resort”, Dutch homeowners regard it as a potential retirement planning tool. However, a reverse mortgage is a relatively complicated financial product that entails certain risks and can be quite expensive. Rules and regulations concerning reverse mortgages should be in place, to prevent mis-selling. The government can play a role in providing safeguards for both borrowers and lenders, in order to support the development of a reverse mortgage market.

M3 - Report

VL - 38

T3 - Netspar Industry Paper

BT - The Psychology and Economics of Reverse Mortgage Attitudes

PB - NETSPAR

CY - Tilburg

ER -

Dillingh WF, Prast H, Rossi M, Urzi Brancati C. The Psychology and Economics of Reverse Mortgage Attitudes: Evidence from the Netherlands. Tilburg: NETSPAR, 2015. 54 p. (Netspar Industry Paper).