Posted: 1 Feb 2009 Last revised: 30 Sep 2011
Date Written: February 1, 2009
This paper studies the relationship between housing tenure and mortgage contract. We show that over a limited horizon, borrowers will have incentive to self-select into the appropriate mortgage product such that their fixed-rate period is directly related to their probability of moving. We empirically test the hypothesis based on actual housing tenure computed from a random sample of a large national database of repeat mortgage sales. We find that, after controlling for borrower characteristics, the hazards of 3/1, 5/1 and 7/1 ARMs, compared to FRM30, are predicted to be 28%, 14% and 11% higher respectively, while that of 10/1 ARMs is 9% lower.
Keywords: mortgage contract, housing tenure
JEL Classification: L85, R51
Suggested Citation: Suggested Citation
Fortowsky, Elaine and LaCour-Little, Michael and Rosenblatt, Eric and Yao, Vincent W., Housing Tenure and Mortgage Choice (February 1, 2009). Journal of Real Estate Finance and Economics, Vol. 42, No. 2, pp 162-180, 2011. Available at SSRN: https://ssrn.com/abstract=1336032