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Mortgage Rate and the Choice of Mortgage Length: Quasi-experimental Evidence from Chinese Transaction-level Data

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  • Guoying Deng
  • Zhigang Li
  • Guangliang Ye

Abstract

Utilizing a large transaction-level dataset on housing mortgages in China, this study estimates the effect of the mortgage rate spread between long- and short-term loans on property purchasers choice of loan length. Our identification of the causal effect of this spread on loan length hinges on a unique institutional feature of China, that is, its dual-track mortgage scheme. We observe two types of mortgagors in this setting: normal mortgagors who face floating mortgage rates spread and special mortgagors who are entitled to a fixed mortgage rate spread. Using the latter as a comparison group to address the confounding effects of omitted factors, we find that the change in interest rates significantly affects the mortgage decisions of normal mortgagors. When the prime mortgage rate spread increases by 10 basis points, the likelihood of such a mortgagor choosing a shortterm loan increases by 8.4 percent.

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Bibliographic Info

Paper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 1202.

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Length: 12 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:bbv:wpaper:1202

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Keywords: Mortgage rates; Loan decision; Quasi-experiment; China housing market;

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  1. Angel De la Fuente & Jose Emilio Bosca, 2011. "Gasto educativo por regiones y niveles en 2005," Working Papers 1119, BBVA Bank, Economic Research Department.
  2. Juan Luis Ordaz Diaz & Adolfo Albo, 2011. "Migracion y cambio climatico.El caso mexicano," Working Papers 1127, BBVA Bank, Economic Research Department.
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