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Differentiated Contracts, Heterogeneous Borrowers, and the Mortgage Choice Decision

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  • Sa-Aadu, J
  • Sirmans, C F

Abstract

Previous analyses of mortgage choice assume that adjustable rate mortagages are standard contracts and estimate bivariate models. The authors estimate a multinomial logit model that explicitly treats mortgages as differentiated contracts and provides insights on several important issues: the impact of price variables differs significantly across alternative mortgage contracts; borrower heterogeneity, particularly mobility, influences the type of contract chosen; and borrowers respond to market conditions as expected when choosing between alternative mortgage contracts. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Sa-Aadu, J & Sirmans, C F, 1995. "Differentiated Contracts, Heterogeneous Borrowers, and the Mortgage Choice Decision," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 498-510, May.
  • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:498-510
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    Cited by:

    1. Brahima Coulibaly & Geng Li, 2009. "Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 659-673.
    2. Agarwal, Sumit & Ambrose, Brent W. & Chomsisengphet, Souphala & Liu, Chunlin, 2006. "An empirical analysis of home equity loan and line performance," Journal of Financial Intermediation, Elsevier, vol. 15(4), pages 444-469, October.
    3. Ehrmann, Michael & Ziegelmeyer, Michael, 2014. "Household Risk Management and Actual Mortgage Choice in the Euro Area," MEA discussion paper series 201406, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    4. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, Elsevier.
    5. Ambrose, Brent W. & Pennington-Cross, Anthony & Yezer, Anthony M., 2002. "Credit Rationing in the U.S. Mortgage Market: Evidence from Variation in FHA Market Shares," Journal of Urban Economics, Elsevier, vol. 51(2), pages 272-294, March.
    6. Silvia Del Prete & Cristina Demma & Paola Rossi, 2017. "From few to many: product differentiation in the Italian mortgage market," Questioni di Economia e Finanza (Occasional Papers) 383, Bank of Italy, Economic Research and International Relations Area.
    7. Philippe BĂ©langer, 2012. "Assessment of fixed rate mortgage implied insurance cost: Method and ex-post Swiss market analysis," ERES eres2012_372, European Real Estate Society (ERES).
    8. repec:mea:meawpa:14283 is not listed on IDEAS
    9. Yevgeny Mugerman & Moran Ofir & Zvi Wiener, 2016. "How Do Homeowners Choose Between Fixed and Adjustable Rate Mortgages?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-21, December.
    10. Ruben Cox & Dirk Brounen & Peter Neuteboom, 2015. "Financial Literacy, Risk Aversion and Choice of Mortgage Type by Households," The Journal of Real Estate Finance and Economics, Springer, vol. 50(1), pages 74-112, January.
    11. Jan K. Brueckner & Kangoh Lee, 2014. "Optimal Risk-Sharing in Mortgage Contracts: The Effects of Potential Prepayment and Default," CESifo Working Paper Series 4979, CESifo Group Munich.
    12. Posey, Lisa L. & Yavas, Abdullah, 2001. "Adjustable and Fixed Rate Mortgages as a Screening Mechanism for Default Risk," Journal of Urban Economics, Elsevier, vol. 49(1), pages 54-79, January.
    13. Yao-Min Chiang & Jarjisu Sa-Aadu, 2014. "Optimal Mortgage Contract Choice Decision in the Presence of Pay Option Adjustable Rate Mortgage and the Balloon Mortgage," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 709-753, May.
    14. Sumit Agarwal & Brent W. Ambrose, 2008. "Does it pay to read your junk mail? evidence of the effect of advertising on home equity credit choices," Working Paper Series WP-08-09, Federal Reserve Bank of Chicago.

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