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Heterogeneous Homebuyers, Mortgage Choice and the use of Mortgage Brokers

Author

Listed:
  • D. Duffy

    (The Economic and Social Research Institute)

  • M.J. Roche

    (Economics, NUI Maynooth, Ireland)

Abstract

Choosing a mortgage product in the face of labor income risk, interest rate risk and borrowing constraints is one of the most important decisions facing a household. This paper investigates the choice between a variety of fixed rate mortgages and adjustable rate mortgages. We find that households with a high loan-to-value ratio, risky income and high risk aversion are more likely to choose a fixed rate mortgage. Choosing a mortgage product relies market search and information. The paper finds that in general first-time homebuyers and those with a high loan-to-value ratio are more likely to use a mortgage broker.

Suggested Citation

  • D. Duffy & M.J. Roche, 2005. "Heterogeneous Homebuyers, Mortgage Choice and the use of Mortgage Brokers," Economics Department Working Paper Series n1520205, Department of Economics, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n1520205
    as

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    File URL: http://repec.maynoothuniversity.ie/mayecw-files/N1520205.pdf
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    References listed on IDEAS

    as
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    2. Dhillon, Upinder S & Shilling, James D & Sirmans, C F, 1987. "Choosing between Fixed and Adjustable Rate Mortgages: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(2), pages 260-267, May.
    3. John Y. Campbell & João F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1449-1494.
    4. Richard A. Phillips & James H. VanderHoff, 1994. "Alternative Mortgage Instruments, Qualification Constraints and the Demand for Housing: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 453-477, September.
    5. G. Stacy Sirmans & Enrico J. Ferreira, 1995. "The Pricing of Housing and Mortgage Services for First-Time Versus Repeat Homebuyers," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 115-127.
    6. Turnbull, Geoffrey K. & Sirmans, C. F., 1993. "Information, search, and house prices," Regional Science and Urban Economics, Elsevier, vol. 23(4), pages 545-557, September.
    7. Brueckner, Jan K & Follain, James R, 1988. "The Rise and Fall of the ARM: An Econometric Analysis of Mortgage Choice," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 93-102, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mortgage choice; First-time homebuyer; Mortgage broker;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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