Reverse mortgages: What homeowners (don’t) know and how it matters

Reverse mortgages allow elderly homeowners to unlock and consume home equity withoutleaving their homes. Relative to the number of elderly homeowners with limited financialresources, the take-up rates of reverse mortgages are low. To understand the low take-up rates we first survey U.S. homeowners aged 58 and older assessing their knowledge(literacy) about the most popular reverse mortgage product, the Home Equity ConversionMortgage (HECM). Next, we study the relationship between knowledge and the intentionto use a HECM. Awareness of reverse mortgages is high, but knowledge of contract termsis limited. More knowledgeable homeowners and those with peers who have a reversemortgage express greater intention to use such a product. Respondents who would benefitmost from reverse mortgages (those with low incomes and limited savings) express greaterintention to use reverse mortgages, but lack knowledge of the contract terms. Our findingssuggest that take-up rates might be increased through improving knowledge about contractterms or changing the product’s design to make it easier to understand in the first place.