Abstract

http://ssrn.com/abstract=1012815
 
 

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Mortgage Timing


Ralph S. J. Koijen


London Business School - Department of Finance; National Bureau of Economic Research (NBER)

Otto Van Hemert


New York University (NYU) - Department of Finance

Stijn Van Nieuwerburgh


New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

September 2007

NBER Working Paper No. w13361

Abstract:     
The fraction of newly-originated mortgages that are of the adjustable-rate (ARM) versus the fixed-rate (FRM) type exhibits a surprising amount of time variation. A simple utility framework of mortgage choice points to the bond risk premium as theoretical determinant: when the bond risk premium is high, FRM payments are high, making ARMs more attractive. We confirm empirically that the bulk of the time variation in household mortgage choice can be explained by time variation in the bond risk premium. This is true regardless of whether bond risk premia are measured using forecasters' data, a VAR term structure model, or a simple rule-of-thumb based on adaptive expectations. This simple rule-of-thumb moves in lock-step with mortgage choice, thereby lending further credibility to a theory of strategic mortgage timing by households.

Number of Pages in PDF File: 53

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Date posted: September 10, 2007  

Suggested Citation

Koijen, Ralph S. J. and Van Hemert, Otto and Van Nieuwerburgh, Stijn, Mortgage Timing (September 2007). NBER Working Paper No. w13361. Available at SSRN: http://ssrn.com/abstract=1012815

Contact Information

Ralph S. J. Koijen
London Business School - Department of Finance ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Otto Van Hemert
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Stijn Van Nieuwerburgh (Contact Author)
New York University Stern School of Business, Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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