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Financial Literacy, Risk Aversion and Choice of Mortgage Type by Households

Listed author(s):
  • Ruben Cox

    ()

  • Dirk Brounen
  • Peter Neuteboom

This paper analyzes how financial literacy and reported willingness to take financial risk impact a household’s choice of mortgage type. The results show that households reporting higher financial literacy and lower risk aversion are 55 to 97 % more likely to opt for interest-only mortgages. The results are robust to alternative explanations such as the involvement of financial advisors, the effect of peers, experience with prior home-ownership, and house price expectations. In general, alternative mortgage products, as opposed to traditional mortgages, are chosen by wealthier, older, and/or more sophisticated households that are more likely to have a greater understanding of the risks and benefits associated with these products. Copyright Springer Science+Business Media New York 2015

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File URL: http://hdl.handle.net/10.1007/s11146-013-9453-9
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Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 50 (2015)
Issue (Month): 1 (January)
Pages: 74-112

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Handle: RePEc:kap:jrefec:v:50:y:2015:i:1:p:74-112
DOI: 10.1007/s11146-013-9453-9
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/regional+science/journal/11146/PS2

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