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Low Demand for Reverse Mortgages in Canada: Price, Knowledge or Preferences?
By Admin SSRN au/at CIRANO, Ismael Choiniere Crevecoeur & Pierre-Carl Michaud
High borrowing costs, limited knowledge and preferences could explain why few Canadians purchase reverse mortgages, an asset decumulation product that is appealing to those who are house-rich but cash-poor. In this paper, we first use an asset pricing model to calculate the actuarial fair costs of guarantees built into reverse mortgage products in Canada and compare those estimates to prevailing interest rates in the market for these products. We also investigate
whether Canadians understand reverse mortgages and whether low demand originates on the preference side by conducting a stated-preference experiment with 3000 Canadians. We manipulate characteristics of reverse mortgages, including the interest rate, to tease out how sensitive Canadians are to these characteristics. Our results suggest that observed interest rates are high relative to actuarilly fair rates and that consumers are somewhat price sensitive in addition to demonstrating little knowledge of these products and low demand overall.
Source: SSRN
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