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Maintaining the Sustainability of Reverse Mortgage Pricing

The demand for reverse mortgages is likely to grow as more seniors struggle to save money for retirement. Although the Home Equity Conversion Mortgage (HECM) program provides insurance protecting seniors from owing more than the value of their homes, borrowers who prepay their loans can damage the sustainability of the program.

To help the HECM maintain long-term sustainability, Tianxiang Shi and his colleague developed a new model capturing the key variables associated with prepayment risk. 

Shi’s model can be easily incorporated when estimating parameters and pricing reverse mortgages for both adjustable-rate and fixed-rate HECMs.