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Adjustable- versus Fixed-Rate Mortgage Choice: The Role of Initial Rate Discounts

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Author Info
Richard A. Phillips (Department of Economics Old Dominion University Norfolk, Virgiana 23529)
James VanderHoff () (Department of Economics Rutgers University at Newark Newark, New Jersey 02101)
Abstract

This paper investigates relative pricing determinants of the fixed-rate mortgage (FRM) versus adjustable-rate mortgage (ARM) decision. A probit model is estimated using data from a national sample of residential housing transactions for the 1986 and 1988 period. The results suggest that the probability of ARM choice is highly sensitive to ARM initial rate ("teaser") discounts and differences in the ratio of FRM to ARM points. In addition, the findings indicate that the level of local housing prices is an important determinant of ARM choice.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol06n01/v06p019.pdf
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Publisher Info
Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 6 (1991)
Issue (Month): 1 ()
Pages: 39-52
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Handle: RePEc:jre:issued:v:6:n:1:1991:p:39-52

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

References listed on IDEAS
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  1. Ariel, Robert A, 1990. " High Stock Returns before Holidays: Existence and Evidence on Possible Causes," Journal of Finance, American Finance Association, vol. 45(5), pages 1611-26, December. [Downloadable!] (restricted)
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  1. Stephen F. Thode & Richard J. Kish, 1994. "The Zero-Coupon/Interest-Only Fixed-Rate Mortgage: An Alternative for Funding Low-to-Moderate Income Housing," Journal of Real Estate Research, American Real Estate Society, vol. 9(2), pages 263-276. [Downloadable!]
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