Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances

19 Pages Posted: 29 Nov 2007

See all articles by Brahima Coulibaly

Brahima Coulibaly

Board of Governors of the Federal Reserve System - Division of International Finance (IFDP)

Geng Li

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2007

Abstract

This study revisits the empirical question of the determinants of the choice between fixed and adjustable-rate mortgages using more comprehensive data from the Survey of Consumer Finances (SCF) that overcome some of the data limitations in previous studies. The results from a Logit model of mortgage choice indicate that pricing variables and affordability are important considerations. We also find that factors such as mobility expectations, income volatility, and attitudes toward financial risk largely influence mortgage choice, with more risk-averse borrowers preferring fixed-rate mortgages. For households that are less risk averse, the mortgage type choice decision is less sensitive to pricing variables and income volatility, and affordability factors are not significant. These findings provide empirical support that underscore the importance of attitudes toward risks in mortgage choice.

Keywords: Mortgage contracts, risk aversion, household finance, fixed-rate, adjustable-rate

JEL Classification: D10, G11, G21, R2

Suggested Citation

Coulibaly, Brahima and Li, Geng, Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances (October 1, 2007). FEDS Working Paper No. 2007-50. Available at SSRN: https://ssrn.com/abstract=1034286 or http://dx.doi.org/10.2139/ssrn.1034286

Brahima Coulibaly

Board of Governors of the Federal Reserve System - Division of International Finance (IFDP) ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Geng Li (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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