The Relative Termination Experience of Adjustable to Fixed-Rate Mortgages
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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Volume (Year): 45 (1990)
Issue (Month): 5 (December)
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