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The Relative Termination Experience of Adjustable to Fixed-Rate Mortgages

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Author Info
 Cunningham, Donald F
Capone, Charles A, Jr
Abstract

The authors' study uses a multinomial logit model to analyze the concurrent termination experience of adjustable-rate and fixed-rate mortgages. A new set of adjustable-rate-mortgage-specific interactive determinants expands the conventional fixed-rate-mortgage specification to isolate the unique termination behavior of adjustable-rate mortgages. The authors find that expected rate adjustments and large lifetime caps are positively related to adjustable-rate-mortgage termination probabilities, while long adjustment frequencies are inversely related. Caps, both periodic and lifetime, have a secondary, inverse effect on termination probabilities when interest-rate movements exceed cap limits. The model also shows that interest-rate expectations affect fixed-rate-mortgage terminations more strongly than adjustable-rate-mortgage terminations. Copyright 1990 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 5 (December)
Pages: 1687-1703
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:5:p:1687-1703

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  1. Danny Ben-Shahar, 2006. "Screening Mortgage Default Risk: A Unified Theoretical Framework," Journal of Real Estate Research, American Real Estate Society, vol. 28(3), pages 215-240. [Downloadable!]
  2. Wayne Archer & David C. Ling & Gary A. McGill, 1995. "The Effect of Income and Collateral Constraints on Residential Mortgage Terminations," NBER Working Papers 5180, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Paul Bennett & Richard Peach & Stavros Peristiani, 1997. "Structural change in the mortgage market and the propensity to refinance," Research Paper 9736, Federal Reserve Bank of New York. [Downloadable!]
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  4. S. Peristiani & P. Bennett & G. Monsen & R. Peach & J. Raiff, 1996. "Effects of household creditworthiness on mortgage refinancings," Research Paper 9622, Federal Reserve Bank of New York. [Downloadable!]
  5. Anthony Pennington-Cross & Giang Ho, 2006. "The termination of subprime hybrid and fixed rate mortgages," Working Papers 2006-042, Federal Reserve Bank of St. Louis. [Downloadable!]
  6. Yongheng Deng & John M. Quigley & Robert Van Order, 1995. "Mortgage Default and Low Downpayment Loans: The Costs of Public Subsidy," NBER Working Papers 5184, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Barry Dennis & Chionglong Kuo & Tyler Yang, 1997. "Rationales of Mortgage Insurance Premium Structures," Journal of Real Estate Research, American Real Estate Society, vol. 14(3), pages 359-378. [Downloadable!]
  8. Raymond Chiang & Thomas F. Gosnell & Andrea J. Heuson, 1997. "Evaluating the Interest-Rate Risk of Adjustable-Rate Mortgage Loans," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 77-94. [Downloadable!]
  9. Sam R. Hakim, 1997. "Autonomous and Financial Mortgage Prepayment," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 1-16. [Downloadable!]
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