Mortgage Timing
Mortgages can be broadly classified into adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs). We document a surprising amount of time variation in the fraction of newly-originated mortgages that are of either type in the US and UK. A simple utility framework points to the importance of term structure variables in explaining this variation. In particular, the inflation risk premium, real interest rate risk premium and both the real rate and expected inflation volatility arise as potential determinants. We use a flexible VAR-model to measure these four term structure variables and show that they account for the bulk of variation in the ARM share. Risk premia alone explain sixty percent of the time variation in mortgage choice. Other term structure variables, such as the yield spread, seem only weakly related to the ARM share. We uncover interesting di erences between the US and the UK. In the US, the inflation risk premium is most strongly related to the ARM share, while in the UK it is the real rate risk premium. In the US, FRMs contain a prepayment option. We analyze the impact of the prepayment option on optimal mortgage choice. The prepayment option hardly weakens the e ects of risk premia on mortgage choice.
mortgage choice housing term structure of interest rates bond risk premia
Ralph S.J. Koijen Otto Van Hemert Stijn Van Nieuwerburgh
Department of Finance, CentER, Tilburg University, Tilburg, the Netherlands, 5000 Department of Finance, Stern School of Business, New York University, 44 W.4th Street, New York, NY
国际会议
成都
英文
1-54
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）