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Mortgage Rate and the Choice of Mortgage Length: Quasi-experimental Evidence from Chinese Transaction-level Data

Author

Listed:
  • Guoying Deng
  • Zhigang Li
  • Guangliang Ye

Abstract

Utilizing a large transaction-level dataset on housing mortgages in China, this study estimates the effect of the mortgage rate spread between long- and short-term loans on property purchasers choice of loan length. Our identification of the causal effect of this spread on loan length hinges on a unique institutional feature of China, that is, its dual-track mortgage scheme. We observe two types of mortgagors in this setting: normal mortgagors who face floating mortgage rates spread and special mortgagors who are entitled to a fixed mortgage rate spread. Using the latter as a comparison group to address the confounding effects of omitted factors, we find that the change in interest rates significantly affects the mortgage decisions of normal mortgagors. When the prime mortgage rate spread increases by 10 basis points, the likelihood of such a mortgagor choosing a shortterm loan increases by 8.4 percent.

Suggested Citation

  • Guoying Deng & Zhigang Li & Guangliang Ye, 2012. "Mortgage Rate and the Choice of Mortgage Length: Quasi-experimental Evidence from Chinese Transaction-level Data," Working Papers 1202, BBVA Bank, Economic Research Department.
  • Handle: RePEc:bbv:wpaper:1202
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    References listed on IDEAS

    as
    1. Angel de la Fuente & José E. Boscá, 2011. "Gasto educativo por regiones y niveles en 2005," UFAE and IAE Working Papers 873.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. Juan Luis Ordaz Diaz & Adolfo Albo, 2011. "Migracion y cambio climatico.El caso mexicano," Working Papers 1127, BBVA Bank, Economic Research Department.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Mortgage rates; Loan decision; Quasi-experiment; China housing market;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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