Katie Sun, Hazel Bateman, Thomas Davidoff, and Katja Hanewald
Abstract: We evaluate the Home Equity Access Scheme (HEAS), a reverse mortgage program offered by the Australian government to supplement retirement income. The HEAS allows older homeowners to age in place by providing loans secured against their home equity. We develop a new stochastic lifecycle model incorporating house price, financial, aged care, and longevity risks to quantify the welfare effects of HEAS use across different representative household types and wealth levels. We apply the model to compare different strategies for utilising the HEAS to increase retirement income and cover aged care costs. We also perform policy experiments to evaluate potential changes to HEAS design. Our results show that a government-offered reverse mortgage program, where loan payments are linked to public pensions, can be a welfare-enhancing method of supplementing retirement incomes. Of the strategies we explore, opting for maximum HEAS payments yields the largest welfare gains for most households. Sensitivity analysis indicates that our results are robust to variations in the HEAS interest rate and house price growth and that welfare gains are inversely related to the strength of the bequest motive.
Keywords: Reverse mortgages, government pensions, retirement income, scenario analysis
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