The Problem of Front-end Loading and Disorder in the Housing Market
The paper asks why indexation of debits is not typically observed in the UK housing market. Indexation ensures that real debits change only if the real rate of interest alters and eliminates the problem of front end loading or the tilt. The typical British repayment mortgage and the index linked alternative are just two special cases of a more general repayment schedule. A measure of front end loading, which compares the real value of debt with the index linked alternative over the term of the loan, is described. Neither of the two special cases need correspond to the ideal degree of front end loading.
Volume (Year): 6 (2001)
Issue (Month): 1 (March)
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- Goodman, Allen C. & Wassmer, Robert W., 1992. "Optimal mortgage design when transaction costs constrain mobility," Journal of Housing Economics, Elsevier, vol. 2(1), pages 17-36, March.
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